# HW2 Key - (10,6 must be less than 12/20 d Tradeoff along...

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Key HW #2 1. a) At Q=12, P = -2*12+40 = 16 so TR = 192. At Q = 15, P = -2*15+40 = 10 and TR = 150 b) elsasticity = 2 1 13 10 16 5 . 13 15 12 - = - - c) Since demand is inelastic, then decrease in price should decrease total revenue, which it does. 2. a) BB 20 hockey 12 b) 10*12 +6*20 = 240 so on budget. Without any info on preferences, or knowing whether this bundle is optimal, cannot tell MRS. c)

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BB 20 hockey 12 (5,9) (10,6) Since IC is tangent at (5,9), and (10, 6) is to the right of (5,9), then IC through (10,6) must be flatter than BC, since slope of BC = 12/20 then MRS through
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Unformatted text preview: (10,6) must be less than 12/20. d) Tradeoff along budget is 2 BB for 1 hockey. Thus BB cost 2 times as much as hockey. If both points on BC that means they cost \$240. This makes price of BB = 10 and price of hockey = 20. BB 24 hockey 12 (12,6) 3. a) Acct profit = 5500*7 – 10000 = 28500 Econ Profit = 5500*7 – 10000 – (100000)*(.05) – 1250*20 = -1500 <0 so get out b) i) No change accounting. Increase economic by 3000 to 1500. ii) Accounting decreases by 2500 to 26000. Economic ends up increasing by 2500 to 1000...
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HW2 Key - (10,6 must be less than 12/20 d Tradeoff along...

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