In a supply- demand demand diagram, draw the shift of the demand curve for hamburgers in your hometown due to the following events. In each case, show the effect on equilibrium price and quantity. The price of taco increases. All hamburger sellers raise the price of their French fries. Income falls in town. Assume that hamburgers are a normal good for most people. Income falls in town. Assume that hamburgers are an inferior good for most people. Hot dog stands cut the price of hot dogs. Concept Introduction: Normal Goods: Normal goods are those goods which have a direct relationship between the income and quantity demanded. When income increases the quantity demanded also increases and vice versa. Substitute goods: Substitute goods are otherwise known as alternative goods which are used for the same purpose e.g. Tea and Coffee. Complementary goods: The complementary goods are those goods are used together. For e.g. pen and ink. Inferior goods: The inferior goods are those kinds of goods it demanded decreases when the income of the people increases for e.g. Potatoes.

Question

Consider a firm facing conventional production technology. The short run Production Function has a small range of increasing marginal product (increasing marginal returns) and then is subject to the Law of Diminishing Marginal Product (diminishing marginal returns). A. Putting quantity on the horizontal axis and dollars on the vertical axis, depict three important curves: Fixed Cost (FC), Variable Cost (VC), and Total Cost (TC). (Note that we are not asking you to depict average cost functions!) B. Please clearly indicate on this graph the range of quantities where the firm is experiencing (1) increasing marginal product and (2) diminishing marginal product. C. In a few sentences, please justify why you've made this specific classification of increasing/diminishing marginal product in part (b).

Answer 1

Question

Chapter 3, Problem 2P

To determine

In a supply-demand demand diagram, draw the shift of the demand curve for hamburgers in your hometown due to the following events. In each case, show the effect on equilibrium price and quantity.

The price of taco increases.

All hamburger sellers raise the price of their French fries.

Income falls in town. Assume that hamburgers are a normal good for most people.

Income falls in town. Assume that hamburgers are an inferior good for most people.

Hot dog stands cut the price of hot dogs.

Concept Introduction:

Normal Goods: Normal goods are those goods which have a direct relationship between the income and quantity demanded. When income increases the quantity demanded also increases and vice versa.

Substitute goods: Substitute goods are otherwise known as alternative goods which are used for the same purpose e.g. Tea and Coffee.

Complementary goods: The complementary goods are those goods are used together. For e.g. pen and ink.

Inferior goods: The inferior goods are those kinds of goods it demanded decreases when the income of the people increases for e.g. Potatoes.

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