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Because of the entry/exit you described in part (a), what do you expect to happen to the industry supply of jelly? Explain.
What will the long-run equilibrium price of canola oil be? How many units of canola oil will each firm produce in the long run?
What will happen to the price of restaurant meals? How will individual firms respond to the change in price? Will there be entry into or exit from the industry?
Why is market price elasticity of demand also always lower than individual price elasticity of demand? Why or why not?
Suppose that at the prices PX and PY of good X and good Y, respectively, Kim is consuming. What is the price of good X in terms of the price of good Y?
Explain why the students must be wrong in their reasoning. Can you tell whether a good is normal or inferior by looking at shape of a single indifference curve?
What can the shape of the indifference curve tell us about two goods? How does the market demand relate to individual demand curves?
When the cross-price elasticity of demand is positive, are the two goods complements or substitutes? What type of goods have a negative cross-price elasticity?
Describe how to decompose the consumer's response to price changes into the substitution and income effects.
Describe how we can derive a consumer's demand curve from his indifference curves. Why would we expect the demand curve to slope downward?
Define the income effect. What variables do we hold constant in order to isolate the income effect? When might the Engel curve be more useful?
Solve Katie's utility-maximization problem using a Lagrangian. How much does Katie's utility increase if she receives extra dollar to spend on paint brushes?
What is Maggie's objective function? What is Maggie's constraint? Write a statement of Maggie's constrained optimization problem.
How does technological change affect a firm's output? What is an expansion path and how does it relate to a firm's total cost curve?
What is the marginal rate of technical substitution? How will a firm react to an increase in the price of one input relative to another?
How does the amount of output change as the isoquants are farther from the graph's origin? Why can't two isoquants cross?
What does a production function tell us? Why is a firm's marginal product of labor more relevant than the marginal product of capital in the short run?
What income would the consumer need to attain the original level of utility when the price of X increases to $5 per unit?
What will happen to Yoshi's consumption of soda? Show, using an indifference curve diagram with soda on horizontal axis and composite good on the vertical axis.
What is Brady's price elasticity of demand for salt? What can we say about Brady's income elasticity of demand for salt?
Mitch cares only about how much he can write. Use indifference curve analysis to derive the demand curve for pencils.
Carmen's preferences are such that she is always indifferent between watching two movies or seeing. What must Carmen's indifference curves look like?
If Alfred employs 3 workers, how many machines will he have to use to achieve the production level you found in (a)? What happens to the isoquant you drew?
Draw the production isoquant corresponding to filling 30 potholes. Assume that production displays constant returns to scale, and draw a few more isoquants.
With the production function Q = 2 min(K,?L) and the cost function C = 2K + 3L, what combination of inputs minimizes costs for Q = 10?