Practice Final Exam
Total : 200 points
Exam time: 7:00 – 9:00.
You have 6 questions in 3 pages.
Please make your diagrams clear and label it.
Good Luck!
1.
Amy is currently spending her income to maximize her utility.
Her utility can be
expressed as the following function:
U=10XY.
Where X is dinner and Y is books.
She spends her $500 income on Dinner and books.
Dinner cost her $20 each and books
cost $25 each. [30 points]
a.
Write down algebraic expression for her budget constraint and Draw Amy’s
budget constraint.
Label appropriately and put Dinner on the horizontal axis. [5
points]
b.
What is her consumption combination of dinner and books?
(hint: MRS=Y/X) [5
points]
c.
Dinner price decreased to $10 as a result of competition.
What will be the new
consumption combination? [10 points]
d.
Show the substitution effect and income effect graphically. [10 points]
2.
A firm’s total cost function is given by the equation:
TC= 5Q  10Q
2
+ 20Q
3
Write an expression for each of the following cost concepts. [each 5 points]
a.
Average Cost
b.
Marginal Cost
c.
Determine the quantity that minimizes average cost.
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 Fall '10
 BeomsooKim
 Economics, Supply And Demand, SBC

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