econ487 hw1 solution.pdf - Economics 487 Spring 2019 Industrial Organization and Data Science Exercises Set 1 Due beginning of class Wednesday April

econ487 hw1 solution.pdf - Economics 487 Spring 2019...

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Economics 487 Spring 2019 Industrial Organization and Data Science Exercises Set 1. Due beginning of class, Wednesday, April 10 th . Feel free to work in groups but everyone is required to turn in their own work with answers written in your own words. In both calculations and complex ideas, write down each step of logic used in reaching your conclusion. Keep in mind that in most cases a good answer is one precise sentence; quality is heavily favored over quantity. This will be graded on a full credit, half credit and no credit basis. All work must be typed 1)Consider the expression “decreasing marginal utility”. a. Please define the last two terms of the expression individually and explain what the entire phrase means in one sentence. Marginal = additional Utility = Indication of well-being economists assume maps to valuation. More generally, a way to describe preferences. “Decreasing additional well-being/value”. b. If an individual exhibits decreasing marginal utility for a good, is their demand curve increasing, decreasing or flat? In one sentence, why? Decreasing. Consumer willing to pay less for additional units of a good. c. If an individual exhibits constant marginal utility for a good, is their demand curve increasing, decreasing or flat? Why? Flat. Consumer marginal willingness to pay a constant amount for additional units of a good. 2) This question has to do with the difference between extensive and intensive margins. Remember that the firm must charge all consumers the same price.
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