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Unformatted text preview: Multiple choice explanations Homework 1: Q1: By de&nition Q2: The coe¢ cient on margarine is positive. As a result, the two goods are substitutes Q3: The coe¢ cient on income is positive. As a result, the good is normal Q4: Elasticity is %change in quantity over %change in price: 30/10=3 Q5: If demand is elastic, then a price decrease increases total revenue (q sold goes up more than p goes down) Q6: the &rst &gure illustrates an expansion of supply, which is inconsistent with an increase in the cost of inputs. The second &gure illustrates an increase in the price of substitute or a decrease in the price of a complement (since there is an increase in demand) Q7: (b) is false since point B lies to the southeast of point A, and elasticity is decreasing along the demand curve Q8: (b) is false since of the alternatives, q=2 yields 19 of pro&t while q=3 yields 18 of pro&t Q9: Solving for the market equilibrium Q10: Elasticity of demand: dQ d dP P Q d = 4 2 7 = 8 = 7 Q11: Elasticity of supply: dQ s dP P Q s = 2 5 4 = 5 = 2 (note that you need to write Q=2P6 to get dQ/dP=2) Q12: Solution for optimal time: MB ( T ) = MC ( T ) Q13: From 12, you got that optimal time is T=7. Calculating TB(7)TC(7)=73.5Q13: From 12, you got that optimal time is T=7....
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 Spring '07
 Eastin
 Business, Supply And Demand, nition, PL =M PK

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