Question

Practice Questions on Chapter 4, 6 and 7 1. Below is the information for an arbitrary firm: Q = 0.35 0.75 C = 5*K+2*L What is the production frontier of this firm (CRS, DRS or IRS)? Setting the capital fixed at 5, what is the MPL? Setting the labor fixed at 5, what is the MPK? What is marginal cost of capital of the firm? What is marginal cost of labor of the firm? Calculate ATC, AVC, AFC & MC for the firm if K-L=5. If this firm can sell her products at the unit price, calculate the profit under following conditions: K = L = 5; K=4&L= 6; K = 6 & L = 4. 2. Using the arbitrary budget constraint for two-good economy, illustrate the effect of decreasing the price for the inferior good (consider the other good as normal) holding other things constant. Identify the income effect and substitution effect separately. 3. In a two-good economy, using the below information, find the substitution effect and income effect separately; explain what types of goods are X and Y using Engle and supply-demand curves: P=2, P=10, Income=100 Consumer chooses 25 of X and 5 of Y based on her preference. Now, the price for X increases to 5 dollars, and as a result, the customer buys 10 of X and 5 of Y. 4. If the customer's utility is defined as follows: U=2X+5Y, and her budget line is 500=50X+25Y; how many X and Y she buys? Now, if the price for X decrease to 25 dollars, find out how many X and Y she buys, and explain-derive the substitution and income effect using illustration.

this is not an assignment or graded, these are just practice questions for me to understand the material bettet. if you answer please explain how you got the answer and with graphs

Answer 1

Answer, (t) acko35 L C= SK+2L 0.35 0.75 to.75 k () ⓇCKIL) = x 0.35 0.75 a (AK, AL) = (1K)0:35 (12) 75 835705 Q CK ,XL) = xt Q(KL) therefore, the production fronfies shows the Constant Returns to scale (CRS). 2=5, Q = (550:35 20.75 -=(1.756) (0.75) ī0.35 -0.21 MPL =09 = (1756) Cor OL 1 MPL = (1.317) [" (mi) { = 5,0 = k0°35 (5,0.75 = (3.344) K. mptes de = (0-35) (3.344) **0875 ImPk = (1117) K TS (iv) marginal cost of capital (me) = 20 = 5 na cest inces mer = 2 (1) marginal cast of labour (mec)=de [MG=2]