Econ313-1, Problem set 2
Think of the goods as being innitely divisible rather than discrete. A person can buy
and consume fractions units of each good.
a. John thinks that 1 oz. of margarine is just as good as 1 oz. of butter. In his local
TA: Tian Liang
Solutions to Problem Set 9
Suppose positive prots can be made when the input bundle is (L, K), i
7r(L,K) =pf(L.K) wLL wKK > 0.
If the input bundle is scaled up to become (tL,tK), where t > 1, the]
Slope = -B
gthe global maximulr
LL. [JUlllL CldbllLlly U1 UtfllldllLl I|
Sincep=ABx,x= - 9 so =
Substitute p* into 119 n = = = -1 9 |n| = 1
d. If you raise the price from this price, the point elasticity of demand increa
TA: Tian Liang
Solutions to Problem Set 2
(a) 2 packages (16 oz) of margarine are just as good as 1 package (16 oz) (
(3}), so margarine and butter are perfect substitutes with an MRS of 1/2. .
that represents Johns preferences is
TA: Vidya Atal
Solutions to Problem Set 1
1. (a) x - cereal, px = 0:25
y - composite commodity, py = 1
m - income, m = 25
i. If Bob devoted his full daily income to cereal, then
If Bob devoted his full daily income to
This exam consists of 3 questions. Label your blue book/s clearly with your name.
Answer question 3 on the exam form. Hand in your exam form with your notebook/s.
The exam is worth 46 points. To help you allocate ti
Prelim 1suggested solution
Question 1 (16 points)
(a) Abby budget:
The budget includes the triangle on the right of the vertical line D = 3 (the dotted
(b) This income is high enough so that 40% of it (which is