Topics: Marginal cost, Cost, Economics Pages: 3 (842 words) Published: December 3, 2012
I True or false.(2points*10)
1. If Good 1 is on the horizontal axis and Good 2 is on the vertical axis, then an increase in the price of Good 1 will not change the horizontal intercept of the budget line. 2. Henrietta's utility function is U(x1, x2) = x1x2. She has diminishing marginal rate of substitution between goods 1 and 2. 3. Other things being equal, a lump sum tax is at least as good for a consumer as a sales tax that collects the same revenue from him. 4. Sharon spends all of her income on peaches and strawberries. Peaches are a normal good for her. Her income increased by 20 percent and prices did not change. Her consumption of strawberries could not have increased by more than 20 percent. 5. Beatrice has the utility function U(x ,y)= min{x ,y}. The price of x used to be 3, but rose to 4. The price of y remained at 1. Her income is 12. The price increase was as bad for her as a loss of $3 in income. 6. Just as in the theory of utility maximizing consumers, the theory of profit maximizing firms allows the possibility of "Giffen factors". These are factors for which a fall in price leads to a fall in demand. 7. If there are increasing returns to scale, then average costs are a decreasing function of output. 8. Since a monopoly makes excess profits beyond the normal rate of return on investment, an investor is likely to get a higher rate of return in the stock market by investing in monopolistic rather than competitive industries. 9. A Stackelberg leader will necessarily make at least as much profit as he would if he acted as a Cournot oligopolist. 10. Dominant strategy equilibrium is a set of choices such that each player's choices are optimal regardless of what the other players choose.

II Fill in the blanks for the following questions:(2points*10) 1) Your budget constraint for the two goods A and B is 12A+ 4B = I where I is your income. You are currently consuming more than 45 units of B. In order to get 5 more units of A, how many units of B would...
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