Question

1. The marginal cost curve must cut the average variable cost and average total cost at their lowest point

a. True

b. False

2. Which of the following is not true of indifference curves?

a. They could intersect

b. They are convex to the origin

c. They are downward sloping

d. All of the above

3. A consumer that does not spend all of her/his income

a.Would be at a point outside of the budget constraint

b. Would be at a point inside the budget constraint

c. Would be where the budget constraint touches the indifference curve

d. All of the above

4. Transitivity of choice implies that if the consumer prefers Good A to Good B, s/he should never change that preference from Good B to Good A

a. True

b. False

Answer 1

1) A) True

In order to earn a firm must set the price above the MC and AVC cost and it is profitable for the firms by producing the goods at minimum point.

2) A) They could not intersect

If indifference curve is sect each other means that the combination of the goods gives them the equal level of the satisfaction.

3) B) The point inside the budget line shows that the consumer did not spend all his income on purchasing the goods.

4) False

Transit assumption states that consumer is indifferent between all those combinations of the goods.Example if the consumer is indifferent to A and B combination he must be indifferent to the combination of the goods B to A.