Question 10:

Suppose a consumer has $600 to spend on goods F andN . The market prices of these two goods are P_f=$10 and P_n=$40.

a.What is the market rate of substitution between goods F and N ?

b.Write the equation for the consumer's budget line.

c.Illustrate the consumer's opportunity set in a carefully labeled diagram.

d.Show how the consumer's budget set changes when the P_f increases to 20. How does this change affect the MRS between the two goods?

e.Show how the consumer's opportunity set changes if income increases by $300. How does the $300 increase in income alter the MRS between goods F and N?

Question 42:

A worker views leisure and income as "goods" and has an opportunity to work at an hourly wage of $15 per hour.

a.Illustrate the worker's opportunity set (budget set) for the worker in a given 24-hour period (Draw the graph).

b.How much will the work earn if she chooses to have 10 hours of leisure time per day?

Question 5:

Suppose that your firm's production function is characterized by the following production function: Q = K^0.5 * L^0.5

Where K is the level of fixed input and L is the number of units of labor used.

a.Calculate the average product of labor (AP_L), when the level of capital is fixed at 36 units and the firm uses 25 units of labor.

b.Calculate the marginal product of labor (MP_L), when the level of capital is fixed at 36 units and the firm uses 25 units of labor.

c.Suppose capital is fixed at 3 units. If the firm can sell its output at a price of $100 per unit of output and can hire labor at $50 per unit of labor, determine the profit-maximizing levels of labor and output?

d.If the per-unit rental rate of capital, , is 20 $ and the per-unit wage, , is 10 $, then

i.What is the fixed cost of using 36 units of capital and 25 units of labor?

ii.What is the variable cost of using 36 units of capital and 25 units of labor?

iii.What is the average total cost of using 36 units of capital and 25 units of labor?

Question 64:

Suppose your firm produces two types of goods: and . An economic consulting firm has estimated your cost function to beC = 70+0.5Q1Q2+0.2Q1^2+0.4Q2^2

Suppose your firm wishes to produce 10 units of product and 10 units of product :

a.Do cost complementarities exist? Explain.

b.Are there economies of scope? Explain.

c.Suppose, the market for is not good, and you are considering selling the division of your firm that produces to an overseas firm. If you sell the division, what will happen to your firm's marginal cost of producing ?