Assignment.
Greg has a salary of $100. He spends his entire budget on milk and cookies. The cost of a quart of milk is $2.00 and the cost of a box of cookies is $4.00.
Construct Greg’s budget constraint (place milk on the y axis).
Suppose Greg’s salary rises by 10%. Also suppose that the price of milk and cookies each rise by 10%. Construct Greg’s new budget constraint. What is the difference between the new and old budget constraints?
Suppose that the price of cookies fell from $4.00 per box to $2.50 per box. Show the substitution and income effects as a result of this price change, assuming that cookies are a normal good. Assume that Greg’s salary is $100.
Suppose that cookies were a Giffen good. Describe what Greg would do if his income effect were greater than his substitution effect.
Captain Jack Sparrow rents a fishing rod for $10. He has no boat of his own so he has to rent one for $5 an hour. The number of fish which he caught over five hours is shown in the table below:
Hours
Fish
0
0
1
10
2
18
3
24
4
28
5
30
Calculate fixed cost, variable cost, total cost, average product and marginal product.
Graph this production function, and describe and explain its shape.
Graph his total cost curve, and explain its shape.
3. The following table shows quantity (Q) and total cost (TC) for three firms:
A
B
C
Q
TC
TC
TC
1
60
11
21
2
70
24
34
3
80
39
49
4
90
56
66
5
100
75
85
6
7
110
120
96
119
106
129
Determine whether each firm exhibits decreasing, increasing or constant returns to scale.
4. The following presents the costs and revenues for a firm.
Quantity
Total Cost
Total Revenue
0
$8
$0
1
9
8
2
10
16
3
11
24
4
13
32
5
20
40
6
7
28
38
48
56
Calculate the marginal cost, marginal revenue and profit for each level of production.
How many units should the firm produce to maximize profit?
Plot the marginal revenue and marginal cost curves.
Is the industry the firm operates in…