Reference no: EM13854787
Assume you have an income of $100 to spend on goods x1 and x2 .
A. Suppose that you have homothetic tastes that happen to have the special property that indifference curves on one side of the 45-degree line are mirror images of indifference curves on the other side of the 45-degree line.
a) Illustrate your optimal consumption bundle graphically when .
b) Now suppose the price of the first 75 units of you buy is 1/3 while the price for any additional units beyond that is 3. The price of remains at 1 throughout. Illustrate your new budget and optimal bundle.
c) Suppose instead that the price for the first 25 units of is 3 but then falls to 1/3 for all units beyond 25 (with the price of still at 1). Illustrate this budget constraint and indicate what would be optimal.
d) If the homothetic tastes did not have the symmetry property, which of your answers might not change?
B. Suppose that your tastes can be summarized by the Cobb-Douglas utility function u(x1, x2) = x1 ^1/2 x2 ^1/2.
a) Does this utility function represent tastes that have symmetry property described in part A?
b) Calculate the optimal consumption bundle when p1= 1 =p2.
c) Derive the two equations that make up the budget constraint you drew in part A(b) and calculate the optimal bundle under that budget constraint.
d) Repeat for the budget constraint you drew in A(c).
e) Repeat (b) through (d) assuming instead u(x1, x2) = x1 ^3/4 x2 ^1/4 and illustrate your answeres in graphs.
|
Equation for line that represents all of these combinations
: Suppose a firm has a fixed $100 to spend on K=10, W=5. What combinations of inputs can the firm buy? What is the equation for the line that represents all of these combinations?
|
|
Are innovators always bad or criminals
: Are innovators always bad or criminals? Can you think of any examples in which people accepted societal goals, rejected the means, and came up with their own legal and creative way of achieving the goals? Please explain.
|
|
Able to influence their decision with your marketing program
: Map out how you think your potential customer goes about making his or her purchase decision for the product/service your venture will market. What are the key internal influences (e.g., motivation) and external influences (e.g., personal influences)..
|
|
Calculate liliputs balance of trade
: Suppose the country of Liliput exported 229 billion dollars worth of goods while they comported 489 bilion dollars worth of goods in the last calendar year. Calculate Liliput's balance of trade:
|
|
Summarized by the cobb-douglas utility function
: Suppose that you have homothetic tastes that happen to have the special property that indifference curves on one side of the 45-degree line are mirror images of indifference curves on the other side of the 45-degree line. Suppose that your tastes can..
|
|
Indifference curves
: Indifference curves
|
|
Suppose government moves to reduce a budget deficit.
: Suppose a government moves to reduce a budget deficit. Using the model developed in class: a) Graphically illustrate the impact of reducing the government’s budget deficit by increasing (lumpsum) taxes on household income. Be sure to label: i. the ax..
|
|
Find the quantity combination that would maximize revenues
: The monthly market demand curve for calculators among economics students is given by P=100-2Q, where P is the price per calculator in dollars and Q is the number of calculators purchased per month. If the Price is $30, how much revenue will calculato..
|