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Unformatted text preview: Short Answers to Prelim 1, AEM 4150, Fall 2008 Section I. 1. In economics, the producer theory states that producers maximize profit by optimizing profit , subject to technological constraint. The demand theory states that consumers maximize utility by optimizing consumption, subject to budget constraint. 2. True, if two goods are joint products then the price of one should be a supply shifter of the other. Joint products come from the same resource (i.e. beef and leather). So if the price of one increases (decreases), then its supply will increase (decrease). The change in the supply of that good will inevitably affect the supply of the other because they both come from the same resource. 3. diagram P Market1-less elastic P Market2-more elastic P1* P2* MR1=MR2 MR MR1 D1 MR2 D2 Q1* Q Q2* Q 4. P S2 S1 D1 D2 Q2 Q1 Q If the consumption and sale of alcohol were outlawed, demand and supply would both decrease and thus the demand and supply curves would both shift to the left. The shift in the demand curve would influence market equilibrium quantity to decrease and market equilibrium price to decrease. The shift in the supply curve would influence market 1 equilibrium quantity to decrease and market equilibrium price to increase. equilibrium quantity to decrease and market equilibrium price to increase....
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- Fall '07