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Unformatted text preview: operation in the short run. d. if price falls below the minimum average total cost, or P2, competitive firms will exit the market. e. Q2, P2 4. a. b. she can purchase 8 bagels. c. slop of budget constrain is -2; slop of the indifference curve at the optimum is -2. The budget line represents the boundary between the set of affordable consumption bundles and unaffordable ones. It is a straight line. The indifference curve is a contour line along which total utility is constant. We can use the slope of budget line and the slope of indifference curve to find the optimal consumption bundle. At the optimal consumption bundle, the marginal rate of substitution between any two goods is equal to the ratio of their prices. Thus, the slope of budget line equals to the slope of the indifference curve at the optimum....
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This note was uploaded on 01/25/2012 for the course AS 195.603 taught by Professor C.b. during the Fall '11 term at Johns Hopkins.
- Fall '11