Estimate a demand function

Reference no: EM1392641

1. A consumer splits their income equally between two goods. If the price of one good increases by 10% and their income increases by 5%, show that the consumer's optimal consumption bundle will change despite them being able to afford their original bundle.

2.When estimating a demand function, explain why fitting a line of best fit through observed price and quantity combinations over time is not likely to yield good estimates.

3.If a firm uses only capital and labour, show why the cost minimising combination of inputs sets: .

This task is intended to assess your knowledge of conventional microeconomic principles (part of LO1). The word count is deliberately tight in order to force you to prioritise the most important arguments/explanations in your answers. Providing clear and concise explanations of the most important aspects will lead to good marks. Your answers should be written in an academic style.

Diagrams are essential. It is impossible to produce a good answer to these questions without using a well-chosen, and well-drawn, diagram. Do not simply present a diagram without carefully explaining it in the text. Use diagrams to save words and explain them to illustrate your answer.

Reference no: EM1392641

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