微观经济学作业答案2

Managerial

Economics

HOMEWORK SET#2

Name:

Class:

Student #:

(Due day: Next class)

Part 1:

1.

The

price

of

good

A

goes

up. As

a

result

the

demand

for

good

B

shifts

to the left. From this we can infer that:

a.

good A is a normal good.

b.

good B is an inferior good.

c.

goods A and B are substitutes.

d.

goods A and B are complements.

e.

none of the above.

Choose: d) the definition os complements

2.

Joe's

budget

line

is

15F

+

45C

=

900.

When

Joe

chooses

his

most

preferred

market basket, he buys 10 units of C. therefore, he also buys :

a. 10 units of F b. 30 units of F c. 50 units of F

d. 60 units of F e. None of the above

Choose:

b) We

assume

that

Joe

will

spend

all

his

income.

If

C

=

10,

then

15F =900

–

45(10) =450, so F = 450/15 =30.

3. Kim only buys coffee and compact discs. Coffee costs $$0.60 per cup,

and

CDs

cost

$$12.00

each.

She

has

$$18

per

week

to

spend

on

these

two

goods.

If Kim is maximizing her utility, her marginal rate of substitution of

coffee for CDs is:

a. 0.05 b. 20 c. 18 d. 1.50 e. None of the above

Choose: a) At Kim's most preferred market basket, her MRS equals the

price ratio (Pcoffee/PCD), which equals 0.6/12 or 0.05.

4. The bandwagon effect corresponds best to which of the following?

a.

snob effect.

b.

external economy.

c.

negative network externality.

d.

positive network externality.

Choose: d)

5. A Giffen good

a.

is always the same as an inferior good.

b.

is the special subset of inferior goods in which the substitution

effect dominates the income effect.

c.

is the special subset of inferior goods in which the income effect

dominates the substitution effect.

d.

must have a downward sloping demand curve.

Choose: c) the definition of Giffen good

6. An Engel curve for a good has a positive slope if the good is :

a. an inferior good. b. a Giffen good.

c. a normal good. d. a, b, and c are true.

e. None of the above is true.

Choose:

c)

Inferior

and

Giffen

goods

have

negatively

sloped

Engel

curves.

7.

The

price

of

beef

and

quantity

of

beef

traded

are

P*

and

Q*,

respectively. Given this information, consumer surplus is the area:

a. 0BCQ* b. ABC c. ACP* d. CBP*

e. 0ACQ*

Choose: d)

Consumer surplus is the area between the demand line and the

price.

8. In Figure 1, holding income constant, what change must have occurred

to rotate the budget line from the old line(1) to the new line(2)?

Pizza

(2)

(1)

Figure 1

a. The price of Coke fell

b. The price of pizza fell

c. The price of pizza rose

d. The price of Coke went up

e. b and c

Coke

Choose:

b) The

horizontal

intercept,

I/PC,

is

unchanged,

which

implies

that

PC

could

not

have

changed

(holding

income

constant).

Since

the

slope

is

PP/PC,

the

slope

change

means

that

the

price

of

pizza

must

have

fallen.

This can also be seen intuitively from Figure 1, since the consumer can

now buy more pizza than before if he spends all his income on pizza.

9. Andy buys 10 pounds of onions per month when the price is $$0.75 per

pound.

If

the

price

falls

to

$$0.50

per

pound,

he

buys

30

pounds

of

onions.

What is his arc elasticity of demand over this price range?

a.

-

1.33 b.

–

2

c.

–

2.5 d.

-

6 e.

None

of

the

above

is

correct.

Choose: c) Using the arc elasticity formula,

EP

?

?

Q

P

(

30

10

)

(

0

.

50

?

0

.

75

)

< br>?

2

?

?

?

?

?

2

.

5

?

P

Q

(

0

.

50

?

0

.

)

(

30

10

)

?

2

The

next

two

questions

refer

to

the

following

information:

Opie

and

Gomer

are the only two consumers in the video cassette rental market in the

Mayberry. Their demand curves per week are pictured in Figure 2.

10. If rentals cost $$2.50 each, the total quantity demanded each week

in the market is :

a. 3 b. 6 c. 15 d. 10 e. None of the above is correct.

Choose:

b)

Add

horizontally

to

get

the

market

demand

curve.

At

P

=

$$2.50,

QO = 3 and QG = 3 for a total of 6 units demanded.

11. For a decrease in price from $$2.50 to $$1.50, market demand is :

a. elastic. b. unit elastic. c. inelastic.

d. perfectly inelastic. e. More information is needed.

Choose: a) Demand is price elastic:

EP = %

Q/%

Δ

P = [(15-6)/6]/[(2.50-1.50)/2.50] = -3.75

OPIE

Price($$/uni

t)

2.50

Do

1.50

Quantity

(number of cassettes)

3

8

(a)

COMER

Price($$/uni

t)

2.50

D

G

1.50

Quantity

3

7

(number of cassettes)

(b)

Figure 2

12. As

president

and

CEO

of

MegaWorld

industries,

you

must

decide

on

some

very risky alternative investments:

Loss if

Failure

A

-$$6

million

B

$$50 million

.2

-$$4

million

C

$$90 million

.1

-$$10

million

D

$$20 million

.8

-$$50

million

E

$$15 million

.4

$$0

The highest expected return belongs to investment

Project

Profit if

Successful

$$10 million

Probability

of Success

.5

Probability

of Failure

.5

.8

.9

.2

.6

a. A. b. B.

c. C. d. D. e. E

Choose: b) Ea=2 Eb=6.8 Ec=0 Ed=6 Ee=6

13.

An individual with a constant marginal utility of income will be

a.

risk averse. b.

risk neutral.

c.

risk loving. d.

insufficient information for a decision.

Choose: b)

An individual with a constant marginal utility of income is

risk neutral.