Reference no: EM133122819

Determine whether each of the following statements is True, False or Uncertain, and explain your answers.

1. Jiwa and Niuwa are two students, who use time (the only input) to produce marks (the output) by studying. They are in the same market for marks, which rewards each student with a fixed price per mark obtained. They also have the same time cost. For simplicity assume that there is no upper bound to marks. Jiwa is a mediocre student who struggles a lot in classes. Niuwa is an extremely bright student who can get all the subtle implications without even paying attention in lectures. In equilibrium, Jiwa's value marginal product (VMP) of the last hour in studying is strictly lower than that of Niuwa.

2. Suppose students' educational experience is produced by two inputs: academic content and student support services. If academic salaries rise relative to the cost of providing student services, universities will provide relatively less academic content and relatively more supportive services to their students.

3. Gary buys boxes of strawberries but only enjoys eating sweet straw- berries. (The non-sweet strawberries give him neither utility nor disutility.) He cannot verify the exact number of sweet strawberries in each box before pur- chasing but knows the average proportion of sweet strawberries. If there is an improvement in strawberry farming technology such that the proportion of sweet strawberries in each box is doubled, Gary will buy more strawberries than before.

4. Once a movie is produced, the distributor is the monopolist selling the movie. Suppose movie distribution involves only fixed cost but no marginal cost. If the distributor practises simple monopoly pricing, the demand at the quantity sold is strictly price elastic (that is, the absolute value of the price elasticity of demand at the quantity sold is strictly greater than 1).

5. If the endowment point of an economy is Pareto optimal, there will be no gain from trade between the consumers.