Micro Concepts Homework

Each letter = 2 points

Graphics are done to scale

Due in class 9/15/14

1

1. Consumer Demand

a. Suppose that income is $100, fish costs $4/kilo, and rice costs $1/kilo.

b. Draw the budget constraint.

c. Draw additional indifference curves to show the initial equilibrium

100 200

100

200

Fish

Rice2

2. Consumer Demand

a. Using the Slide 2, suppose the price of fish falls to $0.50/kilo.

b. Show the new equilibrium.

c. Does utility increase or decrease? Why?

100 200

100

200

Fish

Rice3

3. Consumer Demand

a. Using the Slide 2 parameters, suppose income doubles.

b. Show the new equilibrium.

c. Does utility increase or decrease? Why?

100 200

100

200

Fish

Rice4

4. Production

a. Suppose a lab wishes to process 100 X-Rays per day. Machines rent for $200 per day, workers are paid $150 per day.

b. Show an expenditure line for $1800 per day.

c. Calculate the least cost combination of machines and labor to produce 100 X-rays.

d. Indicate X*, T*, and E*.

8 16

Technicians

8

16

X-Ray machines

Q=100Q=150 Q=200

5

5. Production

a. Starting with Slide 5, suppose that technicians negotiate a pay raise to $200 per day.

b. Calculate the least cost combination of machines and labor to produce 100 X-rays per day.

c. Indicate X*, T*, and E*.

8 16

Technicians

8

16

X-Ray machines

Q=100Q=150 Q=200

6

6. Production

8 16

Technicians

8

16

X-Ray machines

Q=100Q=150 Q=200

a. Starting with Slide 5, suppose that technicians negotiate a pay raise to $200 per day.

b. Calculate the least cost combination of machines and labor to produce 150 X-rays per day.

c. Indicate X*, T*, and E*.

7