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- Suppose Alphonsos town raises the price of bus tickets from 0.50 to 1 and file price of burgers rises from 2 to 4. Why is file opportunity cost of bus tickets unchanged? Suppose Alphonsns weekly spending money increases from 10 to 20. How is his budget constraint affected from all three changes? Explain.Suppose Alphonsos town raised the price of bus tickets to 1 per trip (while file price of burgers stayed at 2 and his budget remained 10 per week.) Draw Alphonsos new budget constraint. What happens to file opportunity cost of bus tickets?Nimbus, Inc., makes brooms and then sells themdoor-to-door. Here is the relationship between thenumber of workers and Nimbus’s output during agiven day:Workers OutputMarginalProductTotalCostAverageTotalCostMarginalCost0 0 ____ ________ ____1 20 ____ ________ ____2 50 ____ ________ ____3 90 ____ ________ ____4 120 ____ ________ ____5 140 ____ ________ ____6 150 ____ ________ ____7 155 ____ ____a. Fill in the column of marginal products. Whatpattern do you see? How might you explain it?b. A worker costs $100 a day, and the firm has fixedcosts of $200. Use this information to fill in thecolumn for total cost.c. Fill in the column for average total cost. (Recallthat ATC T 5 C Q/ .) What pattern do you see?d. Now fill in the column for marginal cost.(Recall that MC TC 5 D ∆ / Q.) What patterndo you see?e. Compare the column for marginal productwith the column for marginal cost. Explain therelationship.f. Compare the column for average total costwith the column for marginal cost. Explain…
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- It is estimated that a grocer’s daily profit from the sale of two brands of cherry juice is given by thefunction:P(x,y) = (x - 30)(70 - 5x + 4y) + (y – 40)(80 + 6x – 7y) centswhere x is the price per can of Brand V Juice and y is the price per can of Brand Triple V Juice. CurrentlyBrand V Juice sells for 50 cents per can and Brand Triple V Juice sells for 52 cents per can.i. Use marginal analysis to estimate the change in the daily profit that will result if the grocer raises theprice of Brand Triple V by one cent per can while keeping the price of Brand V unchanged.ii. Find a stationary point of the daily profit function. Classify this stationary point.The president of LeTall University, President John, spends $30 per week on pizzas (qz)and beers (qb). At LeTall Pizza, his go-to pizza joint, pizza costs $3 per slice and beeralso costs $3 per can. Assume fractions of the goods are allowed.(a) Draw President John’s budget line (qb on the horizontal and qz on the vertical axis).(b) President John receives a coupon from LeTall Pizza. The coupon, which will expirein a week, allows him to buy a can of beer at a discounted price of $1 per can. Itis, however, only good for a dozen cans of beer. Draw President John’s budget lineunder the coupon. Label any critical points on the budget line.(c) In another week, LeTall Pizza offers a special deal for pizza. For every half dozenslices of pizza bought during the week, one can get two additional slices for free.Draw President John’s budget line under the special deal. Label any critical pointson the budget line.Suppose there are two inputs for production, labor and capital. The firm’s production process isdefined by the following production functiony=f(L,K).Howdoweinterpretthefirm’smarginalrateof technical substitution? a)How many units of capital the firm would have to give up in order to attain one more unit oflabor, such that the firm maintains the same cost level b)How many units of capital the firm would have to give up in order to attain one more unit oflabor, such that the firm produces one more unit of output c)How many units of capital the firm would have to give up in order to attain one more unit oflabor, such that the firm maintains the same level of production d)a) and b) are correct e)a) and c) are correct
- a. Andre has a salary of $1000. He spends his entire budget on shoes and beers.The cost for a pair of shoes is $15 and the cost for can of beer is $25.i. Construct Andre’s budget constraint (place) beers on the y-axis. [4marks]ii. Suppose Andre’s salary rises by 25%. Also suppose that the price ofshoes and beers each rise by 40%. Construct Andre’s new budget constraint. What is the difference between the new and old budgetconstraints? [4 marks]iii. Suppose that the price of beers fell from $25 per beer to $15. ConstructAndre’s new budget constraint. What is the difference between the newand old budget constraints. [4 marks]b. Explain the relationship between the budget constraint and indifference curveat consumer optimum. [3 marks](a) Explain with the help of a graph the effect of an increase in the relative price of a labor-intensive good on input choice. (b) “Generally, an economy will tend to be relatively effective atproducing goods that are intensive in the factors with which the country is relatively wellendowed.” Explain the above statement with the help of a graph.)ncob buys only milk and cookies.a. In yeor 1, Jocob earns $100, milk costs $2 perqua rt, and cooki es cost S4 per dozen. Ora\"•jacob's budget constraint.b. Now suppose that a ll prices increase by10 percent in yeor 2 ond !hot jacob's salaryincreases by 10 percent as well. Draw jacob'sn<:w budget constraint. How would Jacob'soptimnl combination of milk and cookies in year 2compare to his optimal combination in year 17