"ECON 2017 45- Abdulaziz Alghamdi - 11602488 1. Below is the budget line for Gorge. Answer the following questions based on his monthly budget constraint 35 30 25 20 Quantity of Lattes S 10 5 0 10 20 30 40 SO 60 70 Quantity of Donuts (a) Suppose the price of lattes is $6.50. What is George's monthly income? (b) Based on the income found in Part A. What is the price of donuts? (c) Suppose the price of lattes changed to 54.88 Draw in new budget line on the same uhove chart. 35 30 25 20 Quantity of Lattes 15 10 10 20 30 40 50 60 70 Quantity of Donuts () A change in George's monthly income from $195 to $82.5 means he can purchase fewer lattes and donuts, shifting the budget line toward the orgin, 35 30 25 20 Quantity of Lattes 10 5 0 0 10 20 30 40 50 60 70 Quantity of Donuts 2. The production possibilities curve below shows the hypothetical relationship between the production of guns (national defense) and butter (social goods) in an economy Combination Guns Butter A 0 4 14 3 26 2 D 36 1 E 44 0 (a) What is the marginal opportunity cost of producing the second unit of butter? What is the tonal opportunity cost of producing the second unit of butter? (b) What is the marginal opportunity cost of producing the third unit of butter? (d) What is the total opportunity cost of producing the third unit of butter? 3. Assume that a fim can produce product A, product B. or product with the resources it currently employs. These resources cost the fimm a total of $5250 per week Assume, for the purposes of this problem, that the firm's costs cannot be changed. The market prices and the quantities of A, B, and C these resources can produce are given as follows Product Market price Output Profit A $14.00 100.00 B 9.00 2.00 50 4.50 (a) Compute the firm's profit when it produces A, B, or C and enter these data in the table. (b) Which product will the firm produce? (e) If the price of changed to $38.5, which product will the firm produce? (d) If the firm produces A at a price of S16, what would tend to happen to the number of firms producing product A? 4. Assume that a firm finds that its profits will be maximized (or losses minimized) when it produces $30 worth of product X. Each of these techniques shown in the following table will produce exactly S30 worth of X Unit resource prices Method #1 Method #2 Method #3 Land $6 3 Labor 9 3 3 Capital 19 Entrepreneurship 12 (a) Which method is most efficient? Why? 4 2. 4 (b) Given the above prices, will the firm adopt a new method which involves 55 units of land, 6.50 of labor, 47 of capital, and 47 of entrepreneurial ability
