Quiz 2 2007 - Name Section Quiz 2 1 The WarmWeather Company...

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Name________________________________ Section ______________________________ Quiz 2 1. The WarmWeather Company produces fleece pullovers using recycled plastic, labor, a factory building, and machines. The fleece pullover market is perfectly competitive. a) What are the variables inputs? What are the fixed inputs? b) Given the graph below, draw the total cost curve if wage = $10. c) Draw the marginal cost curve. Q L 30 20 40 50 10 4 2 8 .5 1
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d) Suppose that the price by a competitior, Fleeceee, for its fleece pullovers is $40. What price does WarmWeather Company charge for its pullovers and why? e) How many fleece pullovers will WarmWeather Company produce? Explain. f) What other information would you need to determine WarmWeather Company's profits? g) Suppose instead that WarmWeather has a constant marginal cost of $30 (note that this is different from what is shown on the graph above). Now how many fleece pullovers will the firm produce?
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Unformatted text preview: 2. Suppose that Samuel Richardson a consumer earns $50,000 this year but only $10,000 next year. Think of this year as his working life and next year as retirement. a) If the interest rate is 10%, what is the present value of his income next year? b) Write the general formula for present value of $x earned one year from now. Write the formula for present value of $x earned 5 years from now. c) Draw the Samuel’s budget constraint for consumption today and consumption tomorrow. d) What happens to the budget constraint if the interest rate drops to 5%? Draw the new budget constraint on the graph and explain. e) Suppose that Samuel Richardson prefers to consume exactly the same amount this year and next year (in retirement). Draw his indifference curves (on the graph above). f) How much should Samuel Richardson save for retirement? Show your answer on the graph and derive it mathematically....
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