Chapter 7
Costs of production
Learning objectives
Distinguish between the short run and long run for a
business
Identify the types of costs incurred by a business when it
increases production in the short run, and relate these to
a business production f
[ECON101] HW1
1.
Consider the estimated supply function for corn given (in the relevant region) by
= 80 + 1.5 0.6 + 0.04
where is the quantity of corn supplied in millions of bushels per year , Pc is the price of corn
in dollars per bushel , Ps is the pr
1
1. A competitive industry consists of six type A firms and four type B firms.
Each firm of type A operates with the supply curve:
= cfw_
10 + ,
0,
> 10
10
Each firm of type B operates with the supply curve:
= 2,
0.
(a) Suppose the market demand is
=
HW5
1. Consider two markets with aggregate demands D1(p) = 40 -p and D2(p) = 30 - p
respectively and a single firm with non-sunk cost function c(q) =8q + q2
The firm acts as a monopolist. Suppose the monopolist cannot price discriminate between the
market
HW1
1.
Consider the estimated supply function for corn given (in the relevant region) by
= 80 + 1.5 0.6 + 0.04
where is the quantity of corn supplied in millions of bushels per year , Pc is the price of corn
in dollars per bushel , Ps is the price of soy
1.
Consider an individual whose preferences over two goods are represented by the utility
function u(x , y) = xy2
a.
Find her marginal rate of substitution at a general point (x, y) with x > 0 and y > 0.
b.
Find all bundles (x, y) at which her marginal ra
1
Problems 1 and 2 concern firms that use two inputs, (z1, z2) to produce one output, y , according to
a production function f(z1 , z2). The firms face per-unit prices w 1 and w2 for the inputs.
h.
a.
c.
1.
Firm 1 has production function f(z1 , z2) =z 1z2
1.
Consider an individual whose preferences over two goods are represented by the utility
function u(x , y) = xy2
a.
Find her marginal rate of substitution at a general point (x, y) with x > 0 and y > 0.
b.
Find all bundles (x, y) at which her marginal ra
Problems 1 and 2 concern firms that use two inputs, (z1, z2) to produce one output, y , according to
a production function f(z1 , z2). The firms face per-unit prices w 1 and w2 for the inputs.
h.
1.
Firm 1 has production function f(z1 , z2) =z 1z2
a.
Wha
Sample Midterm Exam Econ 101
School of Economics, SMU
Term 2, AY 2014-2015
Print Your Name:_
Section (circle one): (G3(Mon) , G4(Tue), G5(Wed)
A. True/False Questions (5 points each): For each statement below,
determine whether it is true or false, and br
Lecture 3
Consumer Choice,
The Theory of Demand
1
Application: Borrowing and Lending
Application: Borrowing and Lending
A consumer receives income in Period 1, and in Period 2. Suppose he can
borrow or lend at an interest rate . What is the equation of th
Lecture 4
The Theory of Demand
1
Consumer Surplus
The individuals demand curve can be seen as the
individuals willingness to pay curve.
On the other hand, the individual must only
actually pay the market price for (all) the units
consumed.
Consumer Surp
Income-Leisure Trade-off
Y= wN
= w(T-L)
Income (Y)
increase in w
C
B
A
Substitution effect (Slutsky): from A to B
Income effect: from B to C
Leisure (L=T-N)
T
Income-Leisure Trade-off
Y= wN
= w(T-L)
Income (Y)
increase in w
C
B
A
Substitution effect (Hicks): from A to B
Income effect: from B to C
Leisure (L=T-N)
T
1
1. A competitive industry consists of six type A firms and four type B firms.
Each firm of type A operates with the supply curve:
= cfw_
10 + ,
0,
> 10
10
Each firm of type B operates with the supply curve:
= 2,
0.
(a) Suppose the market demand is
=
HW5_Answers
1. Consider two markets with aggregate demands D1(p) = 40 -p and D2(p) = 30 - p
respectively and a single firm with non-sunk cost function c(q) =8q + q2
The firm acts as a monopolist. Suppose the monopolist cannot price discriminate between th
HW6_Answer
1.
Consider a market in which two firms compete as quantity setters, and the market demand
curve is given by = 4000 40, where = 1 + 2 . Firm 1 has a constant marginal
cost equal to 1 = 20, while Firm 2 has a constant marginal cost equal to 2 =
Axioms of Rational Choice
0 Axiom1: Completeness
0 If A and B are any two situations, an individual can always
specify exactly one of these possibilities:
0 A is preferred to B
0 B is preferred to A
0 A and B are equally attractive
0 Axiom2: Transitivity
Perfect Competition
0 Competitive Market
0 There are a large number of firms, each producing the
same homogeneous product
0 Each firm attempts to maximize profits
0 Each firm is a price taker
0 Its actions have no effect on the market price
0 Information
Digress: Concavity and
Quasi-concavity
Unconstrained Max
Constrained Max
Curvature of the
objective function
Concave
Quasi-concave
First-order condition
f1=f2=0
1=2=0
Second order
condition(s)
f11 < 0 and f22 < 0
AND 0
2
0
For example
2
Digress: Conc
Production Technology
0 The firms production function
0 For a particular good (q)
0 Shows the maximum amount of the good that can be
produced
0 Using alternative combinations of capital (k) and labor
(l)
q = f(k,l)
Quiz: All material, some question from t
Exchange Game
0 Consider a two individual (Ada and Bill), two good,
pure exchange economy.
0 Adas utility function is
UA(xA,yA) =xA2/3 yA1/3
0 Bills utility function is
UB(xB,yB) =xB1/3 yB2/3
0 Assume that 10,
in which
2,
4,
8,
6
2
Exchang
Market Assumptions
0 Assume that all markets are perfectly competitive
0 There is some large number of homogeneous goods in
the economy
0 Each good has an equilibrium price
0 There are no transaction costs
0 Individuals and firms have perfect information
Consumer Surplus
0 Measure the change in welfare
0 That an individual experiences if the price of good x
increases from p0x to p1x
0 To reach U0
0 Expenditure at p0x: E(p0x,py,U0)
0 Expenditure at p1x: E(p1x,py,U0)
0 To compensate for the price increase
Marshallian
Utility Maximization
0 The individuals objective is to maximize
utility = U(x,y)
subject to the budget constraint
I = pxx + pyy
0 Marshallian demand functions:
x* = x(px, py, I)
y* = y(px, py, I)
plug in optimized endogenous variables x* and y
Profit Maximization
0 Simple model of a firm
0 Technology given by the production function, f(k, l)
0 Inputs: labor (l) and capital (k)
0 Firms objectives: profit maximization
2
Profit Maximization
0 A profit-maximizing firm
0 Chooses both its inputs and
What is Economics?
0 Economics is the study of how scare resources are
allocated among alternative uses.
0 Economists seek to develop simple models to help
understand that process.
0 Many of these models have a mathematical basis
because the use of mathem
Final Exam Econ 101
School of Economics, SMU
Term 1, AY 2015-2016
Print Your Name:_
Section (circle one): (G1(12pm) , G2(7pm)
Instructions:
1. Your handwriting should be good and clear. You wont get good partial
credits if your handwriting is bad.
2. You
Multiple Choice Questions (2pts each): For some questions, you need to choose
more than one answer. Partial point will not be given. Clearly indicate your
answers.
1. Suppose a monopolist faces a demand curve Q = aP'b and that the monopolist has a
constan
HW6
1.
Consider a market in which two firms compete as quantity setters, and the market demand
curve is given by = 4000 40, where = 1 + 2 . Firm 1 has a constant marginal
cost equal to 1 = 20, while Firm 2 has a constant marginal cost equal to 2 = 40.
(a)