b) In Citrusland, the common marginal rate of substitution of lemons for limes is 2 and the marginal rate of product transformation is 2. How should resources be reallocated in this situation? How can this reallocation increase all agents' well- being?
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- Consider Bundle A: (B, M) = (12 loaves, 16 gallons). If bread is the horizontal axis good, what is Rhea's marginal rate of substitution at bundle A?Is the marginal rate of substitution is another way to mathematically expressing the opportunity for one more unit of a good that is consumedSuppose that aKC = 5, capital used to produce one yard of cloth. aLC = 8, labor used to produce one yard of cloth aKF = 4. capital used to produce one calorie of food aLF = 6. labor used to produce one calorie of food. Which of the following is True? a. Cloth is labor intensive. b. Food is labor intensive. c. Both food and cloth are labor intensive. d. Both food and cloth are capital intensive.
- How does a consumer’s optimal choice of goods change if all prices and the consumer’s income double? (Hint: focus on the budget constraint. You don’t have to, but you can use an example to support your answer).5. Output is produced according to a production process given by: Q = 4LK, where L is the quantity of labor input and K is the quantity of capital input. If the price of K is $10 and the price of L is $5, then what is the cost-minimizing combination of K and L capable of producing 32 units of output?Gıven two inputs X1 and X2 with Prices W1 and W2, and a production function Y=F(X1X2) show that the marginal rate of substitution between the two inputs is equal to the ratio of their prices.Ana decides every day how many hours to work and how much beef to consume. She spends all income earned from work each day on consumption of beef. Her utility function for free time (t, 24 hours minus hours worked) and consumption (y) is: U(t,y)=2t^1/2 + y The price per unit of beef consumed is 4 and her hourly wage is 1. Using a diagram and appropriate algebra, explain what Ana’s optimal number of hours work and units of beef consumed are each day. Ana reads a book about the impact of beef consumption on climate change and realises that there is a cost to society of her beef consumption. She takes account of this impact on society in her own decisions, incorporating a disutility of -0.03y per unit of beef consumed. She still only consumes beef and spends all income earned each day on this consumption. Explain, using a diagram and appropriate algebra, how recognition of the impact of her consumption choice on climate change impacts on Ana’s daily free time and beef…
- Specify and explain the typical shapes of marginal-benefifit and marginal-cost curves. How are these curves used to determine the optimal allocation of resources to a particular product? If current output is such that marginal cost exceeds marginal benefifit, should more or fewer resources be allocated to this product? Explain.b) There are two firms in the economy. Each firm employs positive amounts of capital and labour. The technology satisfies diminishing marginal rate of technical substitution of labour for capital. Currently, A’s marginal rate of technical substitution of labour for capital is 4 while B’s marginal rate of technical substitution of labour for capital is 2. Is the current production of the two firms efficient? If not, describe an exchange of inputs that would improve efficiency. Can these production levels of the two firms be observed in a perfectly competitive equilibrium of a production and exchange economy? Explain c) State the first theorem of welfare economics of a production and exchange economy. Which conditions must be satisfied for the Pareto efficiency of an allocation of a production and exchange economy (assuming that all goods are used, produced and consumed in strictly positive quantities)? Discuss and explainSuppose that the production function for a phone is ? = 20K^0.5L ^0.5 . The marginal product of labor is 10(k/l)^0.5 , and the marginal product of capital is 10(L/K) ^0.5 . Suppose that labor can be hired for $6 and capital can be hired for $9. a. When the firm is producing 49 units at lowest cost, what will the firm’s marginal rate of technical substitution be? b. Solve for the lowest-cost combination of labor and capital that will allow the firm to produce 49 phones. Fractional units of labor and capital are allowed. c. What is the minimum cost of producing 49 phones?
- b. Mary has two dinner options available: eating a home cooked meal for $150 permeal, or at a restaurant for $260 per meal. Her weekly budget is $2500.iii. What would be the marginal rate of substitution at the point thatcorresponds to the optimal consumption choice? Interpret the marginalrate of substitution.Consider a firm for which production depends on two normal inputs, labor and capital, with prices w and r, respectively. Initially the firm faces market prices of w = 6 and r = 4. These prices then shift to w = 4 and r = 2.a. In which direction will the substitution effect change the firm’s employment and capital s tock?b. In which direction will the scale effect change the firm’s employment and capital stock?c. Can we say conclusively whether the firm will use more or less labor? More or less c apital?Now assume there is production in the economy. What is the relation between the marginal rate of substitution and the marginal rate of transformation in a general competitive equilibrium? Derive such relation and explain the intuition behind it.