HW#6_Chap 6 and 7_AGEC1113

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Name: Max Nicol AGEC 1113 Homework #6 (Total 20 pts) From Chapter 6: Consider a firm that manufactures machinery. The table below shows some of the different combinations of tractors and lawnmowers that can be produced at the factory (they are on the same production possibilities curve). 1. Complete the table below (1 pts per column: Total 3 pts) Tractors (Y1) Lawnmowers (Y2) Δ Y1 Δ Y2 MRPS 0 13500 50 -1000 -20 50 12500 50 -1500 -30 100 11000 50 -2000 -40 150 9000 50 -2500 -50 200 6500 50 -3000 -60 250 3500 50 -3500 -70 300 0 2. Assume that the price per tractor is $50,000 per unit and the price per lawnmower is $1250 per unit. What is the slope of the isorevenue line? (1 pt.) -30 3. What is the decision rule used to determine the optimal output combination? (1 pt.) MRPS=price ratio

4. The optimal output combination occurs when moving to the combination of _____150____ tractors and _____9000_____ lawnmowers. (1 pt.) 5. If the price of lawnmowers decreases to $1000 per unit, the new optimal output combination occurs when moving to_____200_____ tractors and________6500________ lawnmowers. (1 pt.) 6. To find the revenue-maximizing combination of outputs, a firm will reach the highest isorevenue line possible by locating at the tangency between the _______MRPS_______________and the isorevenue _________. (1 pt.) Define the following terms: 7. Production Possibilities Frontier: (1 pts.) Curve that represents all combinations of 2 outputs with a constant input 8. Marginal Rate of Product Substitution: (1 pt.) The rate when one output must decrease as another output increases 9. Isorevenue Line: (1 pt.) Depicts all of the 2 outputs that generate a constant level of total revenue.

From Chapter 7 : Define the following terms: 1. Utility: (1pt.) Is the satisfaction derived from consuming a good or service 2. Indifference curve: (1pt.) Line showing all of combinations of two goods that provide same utility 3. Marginal rate of substitution (MRS): (1pt.) Rate of exchange of one good for another that leaves utility inaffected 4. Law of diminishing marginal utility: (1pt.) Marginal utility declines as more of a good is consumed 5. Budget line: (1pt.) A line indicating all possible combination of 2 goods that can be purchased using the consumers entire budget 6. List four properties of indifference curves. (1pts.) 1.cant intersect 2. convex to the origin 3.downard sloping 4.preferences are complete

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7. Placing a numerical value on the consumption of a good is an example of (1 pt.) a. Cardinal utility b. Ordinal utility 8. Ranking consumer satisfaction from the consumption of a good is an example of (1 pt.) a. Cardinal utility b. Ordinal utility 9. Draw an indifference curve (label it I 0 ) and budget line (label it B 0 ) on the graph below. Show the equilibrium point (label it E 0 ); and denote the equilibrium quantities of each good as Y 1 * and Y 2 *. Label both of the axes. (Just a general graph, no math needed.) (1 pt.)

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