1. Find the y-intercept, x-intercept, and slope of a consumer’s budget line depicted below. In regards to the consumer’s budget, what do these values represent?
equation 1: 2.5X1 + 3.75X2 = 15.25
2. How does the concept of constrained optimization apply to consumer behavior? What are they optimizing, and what is their constraint?
3. For the equation below, find the marginal utility of X (MU1) and the marginal utility of Y (MU2). U(X, Y) = 4x56y9
4. In the equation above, what is the Marginal Rate of Substitution? What does it represent?
5. Give an example of an inelastic good, and explain what makes it “inelastic.”
6. Define and give an example of a coordination problem in the economy.
7. What is a “Nash Equilibrium” and why might it be important for analyzing economic decision-making? Alternatively you can argue that it is not important, just support your reasoning.
8. What does a point on the isoquant line represent?
9. What is meant by the “Technical Rate of Substitution?”
10. Give a neoclassical assumption about firm behavior and explain why it is relevant to the model.
11. The slope of the isocost line is the ratio between ________ and it has a _______ (+/-)slope.
12. In your own words, explain the difference between increasing and decreasing returns to scale. Give an example of each. You can draw it on a graph if you’d like.
13. What is the equation for profit? Be as specific as possible.
14. Consider the cost function:
TC(q) = 400 + 5q + 10q2
For q={5, 10, 15} calculate the following:
Total Cost (TC); Fixed Cost (FC); Variable Cost (VC); Average Total Cost (ATC); Average Variable Cost (AVC); Average Fixed Cost (AFC); Marginal Cost (MC)
15. A car wash has the following cost function:
TC(q) = 20 +2q + .3q2
where TC is total cost per hour and q is number of cars washed per hour. If you receive $5 for each car that is washed, and wash 7 cars per hour, what is your profit?
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