ECON 2020 Problem Set #3
CHAPTERS 1 and 7 relationship bet
sandwiches Q, MUTU
3 4 1a. What is the opportunity cost of a movie ticket?
Oc of x = 1214=3
b. If the consumer has $36 to spend at BLI, what is the price of a movie ticket?
income = Px • Qx+Py · Qy
COUP Px=89 etc. What would a movement from BL1 to BL2 represent?
decrease in income (36 to 27)
-on test price will change
Study SOU We also discuss several other topics like What is the disability of beethoven?
& Law of diminishing
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
3a. Find the optimal consumption bundle. (Remember the optimal consumption rule.
income must be spent and MUx/Px = MUY/Py.)
Price of X = $21
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
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?
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.
4= 20/4-5 X=20/2-10
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)
MUY 160 B
40 160/40=4 120
60 120/70 = 2 80
80 | 80/80 = 1 D
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
Opt. bundle - B
b. Find the optimal bundle if the price of Y rises to $8.
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
6a. If you can complete this table, then you have mastered all of the cost concepts.co
> 40 160
60 I 60
140 I 240
b. Find the profit of a firm with the above costs if it sells 5 units at a price of $80 each.
cost = 300 a 400-300 = 100l
7. Complete the table. Don't forget that in this case MC = W/MPL. Capital labor Wage
L T W
MPL 1 0 $
12 0 V ---- 1
1 1 $12
1 31 $
ECON 2020 EXAM #3 STUDY GUIDE
5) Study So
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)
Relative price rule Diseconomies of scale/decreasing
Profit (general) returns to scale
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
graph (70) Aspecial ind difference,