Chapter 7: The Costs of Production
come is horizontal. If the f r experiences increasing returns to scale,
im
cOllgt;lntreturns to scalc. its long-run averagc cost curve falls, then becomes
llilrizontill.
,lo\. ,jOes change in the price of one input chang
x h a p t e r 8 : Profit Maximization and Competitive Supply
EXERCISES
1. !e d ata in the following table give information about the price (in dollars) for which a
h
firm can eel1 a u nit of output and the total cost of production.
a.
Fill in the blanks i
ECON191 HONOURS MICROECONOMES
SYLLABUS
1
Course Objective
Introduce an advanced approach in intermediate microeconomics based on strong background in introductory economics. Emphasis is given to the theoretical models, mathematical skills and how
Econ 191
Honors Microeconomics
Outline of Lectures
Francis T. Lui
Department of Economics HKUST
(Spring 2009)
1
Preliminaries
This course assumes that you have already had some knowledge of elementary microeconomics. Emphasis is placed on applications. I
ECON191 (Spring 2009)
9-10.2.2009 (Tutorial 1)
Elasticities of Demand and Supply
Price elasticity of demand
Percentage change in quantity demanded of a good resulting from a 1-percent change in
price
Point elasticity VS Arc elasticity
% ΔQ Δ Q Q Δ Q P
=
P
ECON191 (Spring 2009) 23-24.2.2009 (Tutorial 3)
Chapter 2 Theory of Consumer (Chapter 3 Consumer Behavior) Marginal rate of substitution
Y
-Y X
A
-Y
B X IC1 X
Marginal rate of substitution (MRS): Maximum amount of a good that a consumer is willing to give
ECON191 (Spring 2009) 2-3.3.2009 (Tutorial 4)
Chapter 2 Consumer Theory (Chapter 3 & 4 of textbook) Revealed preference
B B B
X Y A (i) X Y (ii) A Y
X Z A (iii)
(i)
Revealed preference Bundle X that the consumer chooses is revealed preferred to bundle Y,
ECON191 (Spring 2009) 9-10.3.2009 (Tutorial 5)
Chapter 3 Production and Technology Chapter 4 Cost functions (Chapter 6 & 7 of textbook) Example: Assume that a firm uses two types of input in the production of a certain commodity. The 2 2 production functi
ECON191 (Spring 2009) 16-17.3.2009 (Tutorial 6)
Chapter 6 Perfectly competitive market (Chapter 8 & 9 of textbook) Short Run Equilibrium In the SR equilibrium, given market price, P*, Each individual firm takes P* and produce the profit maximizing output
ECON191 (Spring 2009) 23-24.3.2009 (Tutorial 7)
Chapter 7 Monopoly power (Chapter 10 & 11 of textbook) MR and the price elasticity of demand Price elasticity of demand (facing the firm): E d =
Q / Q dQ P = . P P dP Q
MR = P Q +1 - ( PQ - P Q +1Q) [When Q
ECON191 (Spring 2009) 20-21.4.2009 (Tutorial 9)
Chapter 9 Introduction to Game Theory (Chapter 13 of textbook) What is game theory? Game theory is a method for modeling decision making when decisions interact. A game is characterized by (i) The set of pla
ECON191 (Spring 2009) 27-28.4.2009 (Tutorial 10)
Chapter 10: Market for Input Factors (Chapter 14of Textbook) Assumption: Competitive factor market Large numbers of buyers and sellers of factors of production The buyers and sellers are price takers in the
ECON191 (Spring 2009)
4-5.5.2009 (Tutorial 11)
Chapter 12 Economics of Information (Chapter 17 of Textbook)
Signaling
The process of sellers using signals to convey information to buyers about the product’s
quality.
The better informed party plays an acti
ECON191 (Spring 2009) 11-12.5.2009 (Tutorial 12)
Chapter 14 Externalities and Public Goods (Chapter 18 of Textbook) Externalities occur when the welfare of some parties depends on their actions as well as actions under the control of other parties Negativ
ECON191 (Spring 2009) 5.2009 (Tutorial 13)
Chapter 14 Externalities and Public Goods (Chapter 18 of Textbook) Public goods Public goods: goods that are jointly consumed by more than one individual A person can derive utility from the consumption of public
ECON191
Spring 2009
Outline of suggested solutions to Problem Set 6
Question 1
(a) Endowment point: E
0B
Contract Curve
y = 2x/3
UB1
M
YA’ = 20
YA* = 20
YB = 80
UA2
Slope = -2/3
UB2
UA1
Slope = -2/3
E
0A
XA * = 30
K
XA’ = 60
XA = 60
XB = 60
(b) U ( A) = x
Econ 191
Spring 2009
Francis Lui
Problem Set 6
Due Date: Tuesday, May 12, 2009, 12:01 pm. (This is a challenging homework.)
1) (Second Fundamental Theorem of Welfare Economics.) Let there be two persons,
A and B, in a pure exchange economy. A is endowed w
LECTURE 2
DEMAND THEORY
1
Summary Descriptions
Prices
are assumed to be exogenously given to the consumers. The demand curve depicts the relationship between the demand for a given product and its price; other variables and parameters are suppr
Econ 191 Spring 2009 Francis Lui Problem Set 1
Due: February 24, 2009, 1:20 pm SHARP. Your answers should be concise and to the point. Draw diagrams to illustrate your arguments whenever necessary. 1) Suppose that there are two countries, the rich and the
ECON191
Spring 2009
Outline of suggested solutions to Problem Set 1
1)
Poor country
Capital flows into the poor country
More firms will operate and demand for labor increases (demand curve shifts out in the diagram)
Wage rate of labor increases in the poo
Econ 191
Sprig 2009
Francis Lui
Problem Set 2
Due: March 10, 2009, 1:20pm.
1) A pill has been invented to make 4 hours of sleep a night equivalent to the present
8 hours so that the maximum possible leisure per day increases from 16 hours to
20 hours. Peo
ECON191 Spring 2009
Outline of suggested solutions to Problem Set 2 1) True (or uncertain). People will work longer hours
Income 20w 16w b a
The invention shifts the budget constraint to the right. Assume that both wage income and leisure are normal good,
Econ 191 Spring 2009 Francis Lui Problem Set 3 Due Date: March 24, 1:20pm sharp. (1) Suppose that a production function is given by Y = 4K0.25 L0.75. It can be shown that MPL = 3(K/L)0.25 and MPK = (L/K)0.75. It is given that the price of K, PK, is $1/uni
ECON191 Spring 2009
Outline of suggested solutions to Problem Set 3 (1) Given, MPL = 3(K/L)0.25, MPK = (L/K)0.75, PL = $3/unit, PK = $1/unit, PKK + PLL = 8 Cost is minimized when MPL/PL = MPK/PK (K/L)0.25 = (L/K)0.75 L=K Total cost of production PKK + PLL
Econ 191 Spring 2009 Francis Lui Problem Set 4
Due Date: April 7, 2009: 1:20 pm.
1)
Let there be 2 firms, A and B, in a market of the same good. Suppose that it is completely costless to produce the good, and no other firms can enter into the market due t