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please answer part (iii) and (iv), thank you Exercise 1. Suppose the expenditure function derived from a consumer's expenditure minimization problem is given by :
please answer part (iii) and (iv), thank you
Exercise 1. Suppose the expenditure function derived from a consumer's expenditure minimization problem is given by : e(p,u)=(p11+p21)u Evaluate the EV and CV for this consumer for the change from (p1,p2,m)= (1,1,1) to (p~1,p2,m)=(1/2,1,1) Exercise 2. Consider a competitive firm with a cost function defined by c(y)=ay2+b for y>0, and c(0)=0, where a,b>0. Interpret b as a fixed cost, which has already been incurred in the short run, but can be avoided in the long run. (i) Compute the output level y~ at which the average costAC(y) attains a minimum. If b represents a fixed cost, at which output level does the variable cost ay2 attain a minimum? (ii) Derive the firm's short-run and long-run supply functions as a function of price p. (iii) Compute the firm's (short-run) producer surplus at a price p using the integral of the supply function, and confirm that it equals profits plus the fixed costb. (iv) Compute the firm's long-run producer surplus at a price p, when b is a quasifixed/variable cost that can be recovered if production is shut down. Exercise 1. Suppose the expenditure function derived from a consumer's expenditure minimization problem is given by : e(p,u)=(p11+p21)u Evaluate the EV and CV for this consumer for the change from (p1,p2,m)= (1,1,1) to (p~1,p2,m)=(1/2,1,1) Exercise 2. Consider a competitive firm with a cost function defined by c(y)=ay2+b for y>0, and c(0)=0, where a,b>0. Interpret b as a fixed cost, which has already been incurred in the short run, but can be avoided in the long run. (i) Compute the output level y~ at which the average costAC(y) attains a minimum. If b represents a fixed cost, at which output level does the variable cost ay2 attain a minimum? (ii) Derive the firm's short-run and long-run supply functions as a function of price p. (iii) Compute the firm's (short-run) producer surplus at a price p using the integral of the supply function, and confirm that it equals profits plus the fixed costb. (iv) Compute the firm's long-run producer surplus at a price p, when b is a quasifixed/variable cost that can be recovered if production is shut downStep by Step Solution
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