Consider two, goods ice cream and beer. At low levels of consumption both are goods...1 answer below »

Consider two, goods ice cream and beer. At low levels of consumption both are goods (more is better) but after a threshold level each of them becomes a bad (more is worse). Draw an indifference curve for the case described and clearly identify the better than set.

Consider two goods x1 and x2, with M= $100, p1=1, and p2=2. Place x2 on the vertical axis and x1 on the horizontal axis. Label the budget lines as noted in parentheses.

Draw the budget line as noted above (1)

Draw a new budget line with M= $100, and p2=2

Draw a new budget line with prices as in part a., M = $200, and a coupon allowing consumption of 20 units of good 1. The coupon can be purchased for $5

Consider the utility functions U(x1,x2)=x1^ a + x2 ^b, V(x1,x2)=alnx1 + blnx2

Do U and V represent the same preferences? Prove your point mathematically.

Walt consumes strawberries and cream but only in the fixed ratio of three boxes of strawberries to two cartons of cream. At any other ratio, the excess goods are totally useless to him. That is, his utility function is given by U(S, C)=min (3S,2C). The cost of a box of strawberries is $10 and the cost of a carton of cream is $10. Walt’s income is $200. What is Walt’s demand for strawberries and cream?

a. Generate the cost function for the production function y=x1 ^1/4 x2 ^1/2 when W1=1 and w2=10. You can use the Lagrangean approach or make a solid argument about the optimality conditions. If you do the latter use a diagram to bolster your argument.

Using the first order conditions for profit maximization derive the supply function for all prices greater than zero.

What are firm profits if p=1? Does the firm choose to operate?

(i) Consider the production function y= f(K,L) = K ^ a L^b, where K and L represent capital and labor respectively. Show either analytically (using symbols only) r numerically that increasing returns to scale is associated with the condition a+b>1 and decreasing returns to scale with a+b

1. Consider two, goods ice cream and beer. At low levels of consumption both are goods (more is better) but after a threshold level each of them becomes a bad (more is worse). Draw an indifference curve for the case described and clearly identify the better than set. 2. Consider two goods x1 and x2, with M= $100, p1=1, and p2=2. Place x2 on the vertical axis and x1 on the horizontal axis. Label the budget lines as noted in parentheses. a. Draw the budget line as noted above (1)
b. Draw a new budget line with M= $100, and p2=2 c. Draw a new budget line with prices as in part a., M = $200, and a coupon allowing consumption of 20 units of good 1. The coupon can be purchased for $5

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1. Consider two, goods ice cream and beer. At low levels of consumption both are goods (more is better) but after a threshold level each of them becomes a bad (more is worse). Draw an indifference curve for the case described and clearly identify the better than set. 2. Consider two goods x1 and x2, with M= $100, p1=1, and p2=2. Place x2 on the vertical axis and x1 on the horizontal axis. Label the budget lines as noted in parentheses. a. Draw the budget line as noted above (1)
b. Draw a new budget line with M= $100, and p2=2 c. Draw a new budget line with prices as in part a., M = $200, and a coupon allowing consumption of 20 units of good 1. The coupon can be purchased for $5