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4. Explain briefly
a) Efficient Production
b) Inefficient Production
c) What causes NPV to increase
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- 4. The following data pertain to products A and B, both of which are purchased by Jay. Initially, the prices of the products and quantities consumed are: PA = $10; QA = 3; PB = $10; QB = 7 Jay has $100 to spend. After a reduction in price of B, the prices and quantities consumed are: PA = $10; QA = 2:5; PB = $5; QB = 15 Assume that Jay maximizes utility under both price conditions above. Also, note that if after the price reduction enough income were taken away from Jay to put him back on the original indifference curve, he would consume this combination of A and B: QA 1:5; QB = 9 Determine the change in consumption of good B due to the (1) the substitution effect and (2) the income effect using Hicks decomposition.1. How does a consumer’s optimal choice of goods change if all prices and the consumer’s income double? (Hint: focus on the budget constraint) 2. Output is produced according to a production process given by: Q = 4LK, where L is the quantity of labor input and K is the quantity of capital input. If the price of K is $10 and the price of L is $5, then what is the cost-minimizing combination of K and L capable of producing 32 units of output?Which of the following statements is correct? a. In a consumers’ utility maximization problems over current and future consumption goods, a higher rate of return r produces substitution and income effects that cause a decrease in quantity demanded of future consumption goods. b. In a consumers’ utility maximization problems over current and future consumption goods, a higher rate of return r produces substitution and income effects that cause an increase in quantity demanded of current consumption goods. c. In a consumers’ utility maximization problems over current and future consumption goods, a higher rate of return r produces substitution effects that favor more saving and income effects that favor less. d. All of the above.
- constraint optimization 1. a. use the substitution method. given the production function, Q=5k+3L+2KL, choose the input to maximized output subject to the constraint that the planned expanditure on input is 140 dollars. each unit of labour cost 4 dollars and each unit of capital cost 20 b. use the langrange multiplier given Z=4x2+3xy+6y2, subject to the constraint x+y=561. An individual derives utility from the consumption of a basket of goods, c and leisure time, given by U(c, l) =cºl(1-a) where 0 < a < 1, is a constant; and must decide how to allocate her time between work, L and leisure to maximize her utility. The individual has a total of 24 hrs in a day (L + l = 24) and total consumption is constrained by her income; i.e., c = wL, where w the real per hour, is taken as given. (a) Solve for the optimal labor supply.Suppose a consumer has a monthly income of m = 100 which she spendson two commodities: french fries (x1) and beef jerky (x2). The price offrench fries is p1 = 2 and the price of beef jerky is p2 = 5.(a) Write down the consumer’s budget constraint (equation).(b) What is the maximal consumption of french fries (this is calledthe real income in french fries).(c) Find the maximal consumption of beef jerky (real income interms of beef jerky).
- 529. Exercise. Marsha has a job which pays $30 per hour and which allows her to work for as many hours as she would like. Unfortunately, she has a kidney disease and must spend 3 hours each day traveling to the hospital and getting dialysis. Her utility function is x²y, where r is hours of leisure and y is dollars spent on consumption goods. (a) Write down Marsha's budget constraint in terms of dollars. write down Marsha's budget constraint in terms of hours. (b) How many hours each day does Marsha work? she spend on consumption goods? (c) Suppose Marsha gets a kidney transplant and no longer needs dialysis. How many more hours will Marsha work? (The answer might be negative.) How many more dollars will she spend on consumption goods? (Again, the answer might be negative.) | Then |How many dollars does26. Given this diagram; what is the equilibrium level of income? a) 3/4 b) 1/4 Oc) 10 d) 100 O e) 2512. Kinked budget constraints Suppose that your family has just decided to adopt a parakeet named Daisy. You have a monthly budget of $50 that you can choose to spend on either bird seed or other consumption goods. Assume the price of a bag of bird seed is $5 for the first 4 bags, but then it drops to only $3 per bag for each additional bag. All other consumption goods will be treated as a composite good, so you can think of this as simply the cash left over to spend on other items after buying bird seed. On the following graph, use the blue points (circle symbol) to graph your family's budget constraint. Remember to plot from left to right. Line segments will automatically connect the points. OTHER CONSUMPTION (Amount per month) 50 45 40 35 30 25 20 15 10 5 0 0 2 4 6 8 10 12 14 16 BIRD SEED BAGS (Bags per month) 18 20 Budget Constraint
- 12)Suppose a consumer has $100 to spend on two goods, shoes and shirts. If the price of a pair of shoes is $20 per pair and the price of a shirt is $15 each, which of the following combinations is unaffordable to the consumer? A) 0 pairs of shoes and 0 shirts B) 2 pairs of shoes and 4 shirts C) 5 pairs of shoes and 0 shirts D) 0 pairs of shoes and 7 shirts E) 2 pairs of shoes and 3 shirtsJuan is currently working in a job that pays $25 an hour and he chooses to work 8 hours per day. Assume that Juan can work a maximum of 16 hours a day, and he has complete flexibility in how many hours a day he works. Illustrate Juan’s budget constraint and his optimal choice of consumption and leisure. What is the slope of his budget constraint? What does this slope represent? (As on any graph you draw, make sure that you label the axes, the intercepts and the optimal choice.) Juan begins receiving a government transfer payment of $100 per day. Add his new budget constraint to your graph in (a) and show his new optimal choice. Does he choose more or less consumption? More or less leisure? Explain why for both goods. The government imposes a tax of 25% on Juan’s earnings from work and increases his government transfer to $150 per day (the government transfer payment is not taxed.) Redraw the budget constraint from part (b) (omit the part (a) budget constraint), and add a new budget…ASAP 1)Explain why does increased wages could lead to less work or why increased rates of return on savings could lead to reduced savings (in terms of income and substitution effects)
