Problem Set 2

# Problem Set 2 - Department of Economics University of...

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Department of Economics Professor Kenneth Train University of California, Berkeley Fall Semester 2006 ECONOMICS 1 Problem Set 2 Due in your second section meeting in the week of Sept 25. 1. Hiroo is willing to pay \$10 for the first widget that he purchases each year, \$9 for the second, \$8 for the third, and so on down to \$1 for the tenth and nothing for the eleventh. The market price is \$3 a widget. a) How many widgets will he buy, and what will be his consumers' surplus? b) The price of a widget rises to \$5. How many widgets will he buy now, and how will his consumers' surplus change? c) Can you state a generalization about the relationship between the consumers' surplus obtained and the price of a commodity? 2. Suppose that you own a small T-shirt shop near campus. The only fixed cost involved in your business is renting of space, which comes to \$12 a week. a) Given the following total cost figures, compute the average and marginal costs. (Compute your answers to 2 decimal points -- pennies sometimes count in economics!) q TC q TC -------------- ----------------- 1 34 7 72 2 47 8 80 3 55 9 92 4 59 10 109 5 62 11 132 6 66 12 161 b) Plot your results for AC and MC on a single graph.

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