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AU - Econ 2020 - Study Guide

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ECON 2020 Problem Set #3

CHAPTERS 1 and 7 relationship bet

sandwiches Q, MUTU

StuSOU

move

opposite

movie tickets

BL2 BL1

3 4 1a. What is the opportunity cost of a movie ticket?

Oc of x = 1214=3

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b. If the consumer has $36 to spend at BLI, what is the price of a movie ticket?

income = Px • Qx+Py · Qy

36= 4PX+0

COUP Px=89 etc. What would a movement from BL1 to BL2 represent?

decrease in income (36 to 27)

-on test price will change

to

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& Law of diminishing

marginal utility

2. (Let X and Y represent two goods with identical prices in a consumption bundle with

unknown quantities of each. If the marginal utility of the last unit of X consumed is less than the marginal utility from the last unit of Y, then how should the consumer alter the quantities of X and Y to reach optimal consumption? (Assume the consumer is currently spending all income.) If MUX IPX<MUY IP4, If you want to learn more check out What is the descent with modification?

optimal: Mux/Px = Muylpy MUX most increase, muy most decrease consumer should buy less xt more y

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3a. Find the optimal consumption bundle. (Remember the optimal consumption rule.

income must be spent and MUx/Px = MUY/Py.)

Price of X = $21

SO

SE

32

0032

8

Income = $20 We also discuss several other topics like What are the themes in arnold’s work?

If you want to learn more check out How is hypoxanthine formed?

Price of Y = $4_ Qx TUX MUX | MUX/Px Oy T TUY MUY MUY/Py

I 18 T 18 T at

T1 I 32 2032L 8

41.22 + 24 = (2-2) + (2.4) I 30 12 16v

=12 40

56 I 24 I eve I 10 T 5 T Don't forget about the age old question of What are the four types of cells that make up the epidermis?

12. 4x +34= (4.2)+(3.4) 488 We also discuss several other topics like What are the two components of retail price?

4 v

808

2 T -20 b. Find the total utility derived from the entire purchase.

TU of 4x=48 TU of 3y=77 TU=48+72=120 utils Graph the consumer's budget line and draw an indifference curve that is tangent at the optimal bundle. Label the optimal bundle 1, and label any point on the IC to the left of the optimal bundle 2.

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4= 20/4-5 X=20/2-10

4

10

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d. What is the opportunity cost of one unit of good Y? OC of Y = Max ax / Max Qy=1015= 2

Rylex-4/2=2 e. Which point (1 or 2) has the higher MRS?

2 Principle of diminishing MRS

(less of x in 2 than 1) € TRICK QUESTION: Which point (1 or 2) yields a higher level of total utility?

same = game Ic (ic connects all poing that

Yield the same TO)

Studys

Study

MUI

A

MRS

Bundle

MUY 160 B

40 160/40=4 120

20

60 120/70 = 2 80

80 | 80/80 = 1 D

5

60

120 MRS-RP RP= MUX MUY d. Using the relative price rule, find the optimal bundle if the price of X is $4 and the price of Y

is $2. RP-412-2

12

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160/120= 1/2

Opt. bundle - B

COUP

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b. Find the optimal bundle if the price of Y rises to $8.

RP-418=112

OB =D

5) Study Soup

OB = lincome I low price 5a. A consumer considers good X and good Y to be perfect substitutes. If the price of good X

is $4, the price of good Y is $8, and the consumer has $48 to spend, how many units of each good will be in the consumer's optimal bundle? 48/41 (lower of 2= 12

Priced) 12 units x, o units Y

b. If the consumer instead considers the goods to be perfect complements, then how many units

OB-in camel (Px + y) of each good will be in the consumer's optimal bundle?

optimal: 48/(4+8)= 4

4 units x, 4 units Y

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1 Stdyse

CHAPTER 9

6a. If you can complete this table, then you have mastered all of the cost concepts.co

Stu

QTFCT

ТС

TVC O

S

MC

60

I AFC

AVC

I

ATC

0

1 2

.

to-

> 40 160

100

40

(od

40

100

120

20

90

I 20

30

1

I

60 I 60

Study

5

140 I 240

200

SO

so

100

60

b. Find the profit of a firm with the above costs if it sells 5 units at a price of $80 each.

80 5=400

cost = 300 a 400-300 = 100l

TR= PtQ

SOU

Cost

MC

7. Complete the table. Don't forget that in this case MC = W/MPL. Capital labor Wage

Mor

K

L T W

MPL 1 0 $

12 0 V ---- 1

1 1 $12

2

2

1

2

$12

6

4

1 31 $

129

12 14:

31

ay S3

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study

@

ECON 2020 EXAM #3 STUDY GUIDE

Stay Sour

5) Study So

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TERMS: Utility

GRAPHS: Total utility

Budget iine Marginal utility

Indifference curves Law of Diminishing Marginal Utility

MC. ATC, and AVC Budget constraint/line

Shifts of LR cost curves Consumption bundle Optimal consumption bundle Indifference curves Marginal rate of substitution

FORMULAS/EQUATIONS: Principle of Diminishing MRS

Marginal utility = A TU

Total utility = MU Perfect substitutes

Income Perfect complements

Opportunity cost (2) Implicit cost

Marginal utility per dollar Plant capacity

Utility-maximization rule Marginal product of labor

Marginal rate of sub. (slope of IC) Economies of scale/increasing returns to Relative price (slope of budget line)

scale

Relative price rule Diseconomies of scale/decreasing

Profit (general) returns to scale

Economic profit

Accounting profit CONCEPTS:

Total cost Utility facts

Average fixed cost Total utility and quantity demanded

Average variable cost Marginal utility and quantity demanded Average total cost Marginal utility and willingness to pay Marginal cost (2) Factors that change the budget line

Marginal product of labor Utility-Max. (Optimal) consumption

Total product: Q = EMPL Properties of (most) indifference curves Special indifference curves Economic vs. accounting profit Normal profit Short run vs. long run Fixed costs vs. variable costs Law of Diminishing Marginal Returns Factors that shift cost curves

Prod set = 12 Q

9 math a

especial and difference & cost curves

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3

graph (70) Aspecial ind difference,

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