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practicefinalecon

practicefinalecon - Practice Final Exam Total 200 points...

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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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