Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Jane has 6 apples (A) and 4 bananas (B). Bob has 4 apples and 6 bananas. Both of them have standard preferences, and when they
Jane has 6 apples (A) and 4 bananas (B). Bob has 4 apples and 6 bananas. Both of them have standard preferences, and when they are endowed with the above combinations of the goods, it turns out that Janejs marginal rate of substitution of apples for bananas (MRSAB) is 1 and Bob's MRSAB is equal to 3. Answer the following questions. (a) Carefully draw an Edgeworth box diagram that represents the above situation. Please measure apples on the horizontal axis. Label the endowment point (initial allocation) as D. On the same diagram, also draw their indifferences curves that go through the endowment point. (b) Is the initial (endowment) allocation efficient? If so, carefully explain why. OthenNise, carefully explain why not. [Note: In your explanation, please do NOT use the term contract curve. The diagram you drew in the previous part may help your explanation.] (c) Can the competitive equilibrium price ratio be P3 PR : 1? If so, carefully explain why. Otherwise, carefully explain whether it should be below or above : 1 and the reason for it. Suppose that a chair can be produced using 30 hours of labour or machinery in any combination. A chair manufacturer hires its assemblyline labour for $(10 + cc) an hour and calculates that the rental cost of its machinery is $(10 + 3:) per hour, where a: is the last digit of your student ID. [Note: For example, if your student ID is A1234561, then :5 : 7, and so each of labour and machinery costs $17 per hour.] To produce a chair, the manufacturer should hire Select one: 0 a. $ hours of labour and (30 3:) hours of machinery. [Note: :5 is the last digit of your student ID] 0 b. 15 hours of labour and 15 hours of machinery. O c. (30 i :5) hours of labour and :1: hours of machinery. [Note: a: is the last digit of your student ID] O cl. All of (a), (b) and (c) are correct. O e. None of the above choices is correct. Mari spends her income on bread and all other goods. The price of the bread is $2 per loaf. Suppose the Government offers her non-tradable bread stamps that are worth $60. Bread stamps can be used only to purchase bread. Under this policy, it turns out she chooses a bundle where her marginal rate of substitution of bread for (the expenditure on) all other goods is 3 (dollars). Would she prefer the bread stamps worth $60? Would she rather prefer receiving $60 in cash? Select one: 0 a. She would prefer $60 in cash. 0 b. She would preferthe bread stamps worth $60. 0 c. She is indifferent between the bread stamps worth $60 and $60 in cash. 0 d. None of the above choices is correct. Jacob likes pizza but Tak loves it. When a pizza is divided so that each gets a half of it, the allocation is: Select one: Q a. efficient because they should get equal portions. 0 b. inefficient because Tak should get more than Jacob according to their preferences. 0 c. inefficient because some of the pizza should left unused. 0 d. efficient because any reallocation of the pizza cannot make one person better off without harming the other. 0 e. None of the above choices is correct. In the long-run competitive market equilibrium of a constant cost industry with identical firms, if a lump-sum subsidy is granted to every firm: Select one: 0 a. the number of firms in the industry will increase, the output ofthe original firms will rise, and the price of the good in question will fall. O b. the number of firms in the industry will increase, the output ofthe original firms will be unchanged, and the price of the good in question may go up or down. 0 c. the number of firms in the industry will increase, the output ofthe original firms will fall, and the price of the good in question may go up or down. 0 d. the number of firms in the industry will increase, the output ofthe original firms will fall, and the price of the good in question will fall. 0 es None of the above choices is correct
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started