ECON1210 Introductory microeconomics

2023-24 Semester 1
Tutorial 1 – Cost and Benefit Analysis

Teaching assistant: Donald Kwok

Roadmap
• Course logistics
• Course introduction
• Equipment checklist

• Key concepts recall

• Marginal benefit and Marginal cost
• Economic surplus
• Opportunity cost

• Discussion questions
• 5 Example questions
• 4 Past exam questions

• Attendance exercise
Tutor information
• Your teaching assistant: Donald Tin Ho Kwok
• Email: u3570878@connect.hku.hk

• Donald’s tutorial sessions (conducted every week):

• [Face-to-face] Tuesdays 6:30-7:20 pm; KKLG102
• [Face-to-face] Fridays 6:30-7:20 pm; KK1235
• [Online] Saturdays 1:30-2:20 pm

• Donald’s regular office hours:

• Tuesdays 7:30-8:30 pm and Fridays 5:30-6:30 pm
• You are welcome to set up alternative sessions for personal coaching or
individual consultation as needed (by appointment)
Course assessments
• Weekly online quizzes (20%)
• 1 quiz per chapter on Moodle → multiple attempts are allowed for each question, but
there would be a mark deduction of 33.3% for an incorrect answer

• Midterm exam (30%)

• October 29, 2023 (Sun) 2:30-3:30 pm → online

• Final exam (50%)

• Details are to be determined

• Lecture participation (3% bonus)

• Tutorial participation (2% bonus)
• To complete attendance exercise during class
Equipment checklist
1. Excel

2. GeoGebra (Calculator Suite recommended)

• Download link: https://www.geogebra.org/download
• Webpage link: https://www.geogebra.org/calculator

3. Online calculators
• Solving simultaneous / quadratic equations:
https://www.symbolab.com/solver/system-of-equations-calculator
• Computing area of polygon:
https://www.mathopenref.com/coordpolygonareacalc.html
Key concept recall –
Marginal benefit and Marginal cost
• Marginal = Additional
• Should I do the n-th unit of activity x?
• Yes, if MB(n-th unit) ≥ MC(n-th unit)
• No, if MB(n-th unit) < MC(n-th unit)

• We think at the margin

• Total economic surplus = Total benefit – Total (variable) cost

 Key concept recall – Opportunity cost
Definition Opportunity cost (Cost) is the highest-
valued option forgone in making a choice

Note The following shows several important points about opportunity cost
• Only the highest-valued option forgone is relevant
• Change in the value of the chosen option will not affect the cost
• No choice implies no cost
• Full cost should be considered in determining the opportunity cost
• Full cost = Money cost + Non-money cost
• Full cost = Explicit cost + Implicit cost
• Explicit cost: direct monetary payment
• Implicit cost: the value lost from forgoing the alternative
• Sunk cost should not be included in cost-benefit analysis
Discussion questions
Q1
Discussion questions
Q1

Solution
• We do NOT maximize total benefit. We maximize total economic surplus instead.
Hence, Statement 1 is false.
• We should continue to consume as long as MB ≥ MC. At equilibrium, we have
MB(n) = MC(n)
40 − 2n = 30
n=5
Hence, Statement 2 is false as Jane will consume 5 cups.
Discussion questions
Q1
Solution
Discussion questions
Q2
Discussion questions
Q2

Solution
! Use Excel to construct a marginal benefit table!

Fixing a location, say Hong Kong Island, MB(n) is computed as TB(n) – TB(n−1)
For instance, the second workers deployed to Hong Kong Island yields a marginal
benefit of MB(Hong Kong Island, 2) = TB(Hong Kong Island, 2) – TB(Hong Kong Island, 1)
= 80 – 70 = 10.
Discussion questions
Q2
Solution

To solve the problem, we allocate the additional worker one at a time to the district
that yields the highest marginal benefits.
For the first worker, the MB is obviously highest for Hong Kong Island, so we place
the first worker there.
Second worker, if placed Kowloon or New Territories will yield MB(Kowloon, 1) = 40
and MB(New Territories, 1) = 25 respectively; if placed in Hong Kong Island will yield
MB(Hong Kong Island, 2) = 10. Therefore, the second worker should be placed in
Kowloon.
Discussion questions
Q2
Solution

The third worker if placed in New Territories will yield MB(New Territories, 1) = 25
and if placed in Kowloon will yield MB(Kowloon, 2) = 20; if placed in Hong Kong
Island will yield MB(Hong Kong Island, 2) = 10. The third worker should be placed in
New Territories.
Now, fourth worker: Hong Kong Island MB(Hong Kong Island, 2) = 10, Kowloon
MB(Kowloon, 2) = 20, New Territories MB(New Territories, 2) = 11. Hence, the forth
worker should be placed in Kowloon.
Discussion questions
Q2
Solution
If we continue this exercise until we reach the sixth worker, we can conclude 1
worker to Hong Kong Island, 4 to Kowloon and 1 to New Territories.
 Discussion questions
Q3
Michael can choose among three different jobs. His choice of preference is as follows:

(I) being a professor at the University of Hong Kong

(II) being an advisor at the Hong Kong Monetary Authority

(III) being a sales representative at Utopia Electric, an international consumer product company.

Assuming his preference (the ranking of options) remains unchanged, which of the following will
increase his opportunity cost of being a professor at the University of Hong Kong?

A. Hong Kong Monetary Authority requires its advisors to work longer hours
B. Hong Kong Monetary Authority decides to increase the remuneration of its advisors
C. The students in the University of Hong Kong are becoming more rebellious
D. Utopia Electric decides to increase the bonuses for its sale representative
E. Opportunity cost is determined by preference and thus cannot be changed by external factors
 Discussion questions
Q3
Michael can choose among three different jobs. His choice of preference is as follows:

(I) being a professor at the University of Hong Kong

(II) being an advisor at the Hong Kong Monetary Authority

(III) being a sales representative at Utopia Electric, an international consumer product company.

Assuming his preference (the ranking of options) remains unchanged, which of the following will
increase his opportunity cost of being a professor at the University of Hong Kong?

A. Hong Kong Monetary Authority requires its advisors to work longer hours (cost of II ↑)

✓ B. Hong Kong Monetary Authority decides to increase the remuneration of its advisors (value of II ↑)
C. The students in the University of Hong Kong are becoming more rebellious (value of I ↓)
D. Utopia Electric decides to increase the bonuses for its sale representative (value of III ↑)
E. Opportunity cost is determined by preference and thus cannot be changed by external factors
Discussion questions
Q4
Discussion questions
Q4
Solution
Opportunity cost is the highest-valued option forgone.
Opportunity cost = Explicit cost + Implicit cost

Opportunity cost
= ($48,000 + $800 + $4,000) + ($24,000)
= $76,800

The other expenses are costs that have to be paid whether Jason goes to college or
not.
Discussion questions
Q5
Your family is taking a week-long summer vacation at a cabin in the mountains next
to a lake. You have been able to get time off work at the job where you normally
work 40-hours a week at $12 per hour. Your parents are paying $1,500 for the cabin
rental and each child (including yourself) will pay $200 for food and other related
costs. You currently have your own rented apartment with a monthly rent of $300
and typically pay $75 per week for food. The travel cost to get to the cabin and back
will cost you $50 more than your usual weekly travel expenses. What is YOUR total
opportunity cost of the summer vacation?

A. $480
B. $655
C. $730
D. $955
Discussion questions
Q5
Your family is taking a week-long summer vacation at a cabin in the mountains next to a lake.
You have been able to get time off work at the job where you normally work 40-hours a week at
$12 per hour. Your parents are paying $1,500 for the cabin rental and each child (including
yourself) will pay $200 for food and other related costs. You currently have your own rented
apartment with a monthly rent of $300 and typically pay $75 per week for food. The travel cost
to get to the cabin and back will cost you $50 more than your usual weekly travel expenses.
What is YOUR total opportunity cost of the summer vacation?

Solution
• Work: 40 hours a week at $12 per hour → $480
• Cabin fee: $1,500 (not paid by you)
• Food: $200 during holiday, $75 in typical days → extra $125
• Extra travel cost: $50
• Your OC = $(480+125+50) = $655
Discussion questions
Past Exam Question 2021 Fall Final Q2
Discussion questions
Past Exam Question 2021 Fall Final Q2
Solution
Eqn 1: MB(n) = MB(m)
Eqn 2: Budget constraint

1030 − 4𝑛 = 2570 − 19𝑚

ቊ
𝑛 + 𝑚 = 80

−4𝑛 + 19𝑚 = 1540

ቊ
𝑛 + 𝑚 = 80
! Online calculator or program for simultaneous equations!

𝑛 = −0.87
Solving, we have ቊ , which is not possible for negative consumption
𝑚 = 80.87
Hence, Veronica would allocate 0 dollars on salmon and 80 dollars on oyster.
Discussion questions
Past Exam Question 2022 Spring Final Q2
Discussion questions
Past Exam Question 2022 Spring Final Q2
Solution
We can infer that MB(28) ≥ P and MB(29) < P
Consider MB(28) ≥ P and MB(29) < P
425 – 14(28) ≥ P and 425 – 14(29) < P

P ≤ 33 and P > 19
i.e. 19 < P ≤ 33
Hence, the price per movie (P) is less than or equal to 33 dollars and more than 19
dollars.
Discussion questions
Past Exam Question 2023 Summer Midterm Q3
Discussion questions
Past Exam Question 2023 Summer Midterm Q3
Solution
Eqn 1: MC(n) = MC(m)
Eqn 2: Time required

330 + 3𝑛 = 270 + 5𝑚
ቊ
𝑛 + 𝑚 = 29

3𝑛 − 5𝑚 = −60
ቊ
𝑛 + 𝑚 = 29
! Online calculator or program for simultaneous equations!

𝑛 = 10.625
Solving, we have ቊ
𝑚 = 18.375
Hence, the manager would allocate 10.62 hours to Donald and 18.38 hours to Joshua.
Discussion questions
Past Exam Question 2023 Summer Final Q3
Discussion questions
Past Exam Question 2023 Summer Final Q3
Solution
Chloe can engage in one of the three activities
• Economic surplus of going to Ocean Park = $(X – 200)
• Economic surplus of working as a waitress = $400
• Economic surplus of working as a tutor = $160 × 3 = $480
→ No matter what the value of “X” is, Chloe prefers the tutor job to the waitress job

If Chloe chooses to go to Ocean Park, then ES of Ocean Park ≥ $480.

X – 200 ≥ 480
X ≥ 680
Thank you for joining the tutorial!