Identify the income and substitution effect

Reference no: EM133340723

Questions:

1. Separate the substitution effect from the income effect for a perfect substitute indifference curve for a decrease in the price of a normal good. Assume that MRS Px/Py. Identify the income and substitution effect.

2. Using your understanding of the Edgeworth box, what is the sufficient condition for both consumers to be on the optimal acceptable exchange curve? Explain the contract curve.

3. Separate the substitution effect from the income effect for a perfect complement indifference curve for an increase in the price of a normal good. Identify the income and substitution effect.

4. Graphically show a diagram of a firm making a loss in the short run under perfect competition. Make sure to indicate the area that represents the firm's loss.

5. Explain the relationship between the marginal cost and marginal product of labor. Relate your answer to the diminishing marginal product of labor.

6. Show by indifference curve analysis with a budget line on the choice of one couple not to have children and of another couple with the same income and facing the same costs of having and raising children deciding to have children. Make sure to explain how you arrived at your answer.

Reference no: EM133340723

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