Econ 110 F13 Practice Chap 9-11

Econ 110 F13 Practice Chap 9-11 - Economics 110-02 Intro to...

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Unformatted text preview: Economics 110-­‐02: Intro to Economic Theory Wesleyan University Fall 2013 Professor Damien Sheehan-­‐Connor Practice Problems: Chapters 9-­‐11 1. Textbook Problem, Chapter 9, Problem 1 2. Textbook Problem, Chapter 9, Problem 9 3. Textbook Problem, Chapter 10, Problem 6 4. Textbook Problem, Chapter 10, Problem 7 5. Suppose that the price of good x is $5/unit and the price of good y is $10/unit. Xiao is considering purchasing 3 different bundles of goods x and y, which we label A, B, and C. (Note that “bundle” just means some combination of the two goods. For example, 3 units of x and 5 units of y is a bundle.) Xiao has diminishing marginal utility for both goods x and y. a. Xiao’s marginal utilities when consuming each of the bundles are given in the table below. Fill in the remainder of the table: Bundle MUx MUy MU per MU per Compared to this bundle, should Xiao dollar dollar buy (1) more x and less y; (2) more y spent spent and less x; or (3) exactly this bundle? on x on y A 20 20 B 20 60 C 20 40 b. Explain how your answers to the questions in the first two columns enable you to answer the question in the third column. c. Xiao’s marginal utilities when consuming each of the bundles are given in the table below. Fill in the remainder of the table: Bundle MUx MUy What is the Given the Compared to this largest number of market prices, bundle, should Xiao units of y that how many units buy (1) more x and Xiao would be of y does Xiao less y; (2) more y and willing to give up need to give up less x; or (3) exactly to get one unit of to get one unit of this bundle? x? x? A 20 20 B 20 60 C 20 40 d. Explain how your answers to the questions in the first two columns enable you to answer the question in the third column. 6. Textbook Problem, Chapter 11, Problem 2 7. Textbook Problem, Chapter 11, Problem 3 8. Textbook Problem, Chapter 11, Problem 4 9. Suppose that a firm’s production function is given by , = !.! !.! where is the amount of capital owned by the firm and is the amount of labor hired by the firm. Further suppose that the amount of capital is fixed at = 100. Capital costs $10 per unit (even though the firm already “owns” it-­‐ think of it as the opportunity cost of the capital) while labor costs $5 per unit. a. Draw the firms output as a function of labor for values of between 0 and 200. Using a spreadsheet to generate the graph is a good idea. b. Calculate an expression for the firm’s marginal product of labor. i. Is your expression or decreasing, constant, or increasing as increases? Make sure you see how this relates to the picture you drew in part (a). c. Write an expression for the firms total cost function, c(q). d. Write an expression for the firms marginal cost function, MC(q). e. Write an expression for the firms average cost function, AC(q). f. Graph the firms marginal, and average cost functions in the same graph for quantities between 0 and 200. Using a spreadsheet to generate the graph is highly recommended. ...
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