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1. Suppose M = 20, p1 = 2 and p2 = I initially, but then p1 is then lowered to 1. Show graphically the utility
1. Suppose M = 20, p1 = 2 and p2 = I initially, but then p1 is then lowered to 1. Show graphically the utility maximizing points chosen by a consumer for whom this good is a, Giffen good. Can your sketched indifference curves be consistent with a Cobb Douglas utility func- tion? Explain. 2. What are luxury, nessesary and inferior goods? In a two good world if one good is a luxury good must the other be inferior? Explain. 3. A consumer has a quasi-linear utility function (u 2 '0 (1:1) i 3:2) . Further, suppose income is 50, initially p1 pg 1, but then p1 rises to 2. Show graphically the CV and EV associated with this price increase for good 1.Which is larger? Why? 4. Sketch the AC, MC and AVG curve for a technology that has a U-shaped AVG curve. Pro vide an explanation for each point where AVG and MC are equal. 5. A rm has a. long run cost function given by C (y) z 200 + 2y2. Sketch the associated long run AC curve. On your graph include a short run AC curve at y 5. Explain why the SRAC has the shape you sketched
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