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Unformatted text preview: 8. in the following ﬁgure, clearly draviltthe rectangle that represents the amount of proﬁts.
[N r. VI
9. Based on the ﬁgure, which of the following is stated correctly? (Please circle one response.) a At 1”1 , yr > 0. and at P” or below, the ﬁrm chooses not to produce b. At P" , 7: < 0 , and at P3 or below. the ﬁrm chooses not to produce AC
c. At P" . Ir > O, and at P” or below, the ﬁrm chooses not to produce
d. At Pt, . I: < 0 , and at PiJ or below, the firm chooses not to produce V( A .4“ n F PB r‘ e t — - ~ - ' - $5 10. Alexa’s cost function is C(y) : y” +15. a. Calculate A VC, AC, and MC. b. At whatpricc does Alexa make exactly zero proﬁts? (You don’t have to simplify your answer.) i 1. Based on the Utility Possibility Set (leﬁ ﬁgure), label the points A and B in the Edgeworth Box (right ﬁgure). 0 it
“a u I o
12. As depicted in the ﬁgure below, both consumers1 indifference curves are linear. Given that consumer 1’s
le are less steep than consumer 2’s ICs (from the perspective of origin 1), clearly label the Pareto Set (311 PO allocations). O 2‘ O 13. Bert and Ernie are competitive consumers in a pure exchange economy. Their endowments of good 1
and 2 are em = (10,5) and em“, = (10,5) . The prices of goods 1 and 2 are P1 and PE. Bert’s demand Hort . . . . - 3m ,
. Enne‘s demand function tor good 1 is X13" 2: m“ function for good 1 is Xluwt :
4PI 41)] a. What is the aggregate amount of good I? b. What are mam and mm”, (as a function of prices and endowments)? c. Normalize P: = 1. What are the equilibrium prices, i.e. what is P, ? 1-4. Suppose that the social planner wants to implement a competitive equilibrium in which Bert consumes
exactly 6.25 units of good 2. To do so, the social planner transfers good one from Bert to Ernie. Bert‘s
3m Bert demand function for good 2 is X5” = . Normalize PI =1, as above. (15 points) '1 a. Denote the transfer from Bert to Ernie as 1'". What are mam and mEm now? (Hint: take your
answer to 13b, subtract Tfrom Bert’s income, and add Tto Ernie’s income.) b. The social planner wants Bert to consume exactly 6.25 units ofgood 2. Write the equation that
sets Ben‘s demand for good 2 equal to 6.25. (Hint: it should only be a function of P, and T.) c. Write the equation that determines the equilibrium prices, i.e. that determines P2 , since R = l.
(Him: it should only be a function of P2 and T.) d. Use the equations in b and c to solve for T(get a number). This is the transfer that implements
the social planner’s desired equilibrium. ...
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- Fall '08