Class Discussion # 13 (Ch. 21)
1. If the average cost curve U shaped, then the marginal cost curve must cross the average
cost curve at the bottom of the U.
2. If the marginal cost curve passes through the minimum point of the average f
Class Discussion # 8 (Ch. 15)
1. If the demand function is q = 3m / p , where m is income and p is price, then the absolute
value of the price elasticity of demand decreases as price increases.
2. If a consumer has to pay his reservatio
Class Discussion # 6 (Ch. 8)
1. Jimmys utility function is U (a, b) = ab where a is his consumption of apples and b is his
consumption of bananas. If prices and income change in such a way that Jimmys old
consumption lies on his new bud
Class Discussion 17 (Ch.25)
Third degree price discrimination occurs when a monopolist sells output to different people at different prices, but
every unit that an individual buys costs the same amount.
A monopolist who
1. Wei has preferences represented by the utility function: . If good 1 is on the horizontal
axis and good 2 is on the vertical axis, what is the slope of his indifference curve at the
a) The slope is -4.
b) The slope is -7/4.
c) The slope is
1. If the marginal cost curve passes through the minimum point of the average fixed
cost curve. (T/F)
1. A competitive firm has the short run cost function . The firm will produce a
positive amount in the short run if and only if the price is greater than
Monopoly 4 , D Q] [E]  l 6) coursesaniiudrn '-
In Gomorrah, New Jersey. there I; only one newspaper. the Daily Calumny. The demand lor the paper depends on
the price and the amount or scandal reported. The demand function is mam : lag/25's, wher
1. A competitive, profit-maximizing firm uses two inputs a and b. Its production
function is . Its output sells for $5 per unit. The price of input a is $1 per unit. If
the price of output rises to $6 per unit but factor prices do not change:
J a. The cast of corn
Suppose that a farmers cost or growing y bushels of com ls given by the cost function C(yi : (flea) + y.
® a. What is the farmer's supply curve of earn as a functlnrl nfthe price of corn? 5(p) = 10p 10 J v
Rationality in Economics
A decisionmaker always chooses its
most preferred alternative from its
set of available alternatives.
x So to model choice we must model
Supply From A Competitive Industry
How are the supply decisions of the
many individual firms in a
competitive industry to be combined
to discover the market supply curve
for the entire industry?
Supply From A Competi
1. Phils utility function is . His income is $100; the price of good 2 is $10. Good 1 is priced
as follows. The first 6 units cost $10 per unit and any additional units cost $5 per unit.
What consumption bundle does Phil choose?
Class Discussion # 14 (Ch. 22)
1. The area under the marginal cost curve measures total variable costs. T because the
area under the MC is the cost of producing the first unit, plus the cost of producing the
second unit, and so on Since
Class Discussion # 2 (Ch. 3)
1. A consumer with convex preferences who is indifferent between the bundles (1, 4) and
(9, 2) will like the bundle (5, 3) at least as well as either of the first two bundles.
2. If preferences are transitiv
A firm is a cost-minimizer if it
produces any given output level y
0 at smallest possible total cost.
x c(y) denotes the firms smallest
possible total cost for producing y
units of output.
x c(y) is the
How Should a Monopoly Price?
So far a monopoly has been thought of as
a firm which has to sell its product at the
same price to every customer. This is
Can price-discrimination earn a monopoly
A monopolized market has a single
x The monopolists demand curve is
the (downward sloping) market
x So the monopolist can alter the
market price by adjusting its output
Class Discussion # 7 (Ch. 14)
1) Suppose you are in charge of a toll bridge that is essentially cost free. The demand for bridge
crossings Q is given by P = 12 2Q .
a) Draw the demand curve for bridge crossing.
b) How many people would cross the b
Class Discussion # 5 (Ch. 6)
1. If preferences are quasilinear, then for very high incomes the income offer curve is a
straight line parallel to one of the axes.
2. Prudence was maximizing her utility subject to her budget constraint. T
Class Discussion # 15 (Ch. 23)
1. The bicycle industry is made up of 100 firms with the long run cost curve
c( y ) = 2 + ( y 2 / 2) and 60 firms with the long run cost curve c( y ) = y 2 / 10 . No new firms
can enter the industry.
Class Discussion # 16 (Ch. 24)
1. Since a monopoly charges a price higher than marginal cost, it will produce an inefficient
2. A monopolist will always equate marginal revenue and marginal cost when maximizing
Class Discussion # 10 (Ch. 18)
1. If there are constant returns to scale, then doubling the amount of any input will exactly
double the amount of output.
2. If the production function is f ( x, y ) = mincfw_ 2 x + y, x + 2 y , then ther
Class Discussion # 11 (Ch. 19)
1. If the value of the marginal product of factor x increases as the quantity of x increases,
and the value of the marginal product of x is equal to the wage rate, then the profit
maximizing amount of x is
Class Discussion # 1 (Ch. 2)
1. If there are two goods with positive prices and the price of one good is reduced, while
income and other prices remain constant, then the size of the budget set is reduced.
2. If all prices are doubled an
Class Discussion # 12 (Ch. 20)
1. If there are increasing returns to scale, then average cost are a decreasing function of
2. If there are increasing returns to scale, then const per unit of output decrease as you move
Class Discussion # 3 (Ch. 4)
1. If someone has a utility function U = 2 mincfw_ x, y , then x and y are perfect complements
for that person.
2. Wanda Lott has the utility function U = maxcfw_ x, y . Wandas preferences are convex.
technology is a process by which
inputs are converted to an output.
E.g. labor, a computer, a projector,
electricity, and software are being
combined to produce this lecture.