Question

A. Maria’s marginal rate of substitution of cupcakes (X) for apples (Y) equals 5/8. Explain the meaning of this particular numerical value for Maria.

B. The demand for a product is Q_{d} = 2776 – 75P.
Calculate the price elasticity of demand at a price of $32 and
explain the meaning of this particular numerical value.

Answer #1

A..

Marginal rate of substitution tells that how much one good sacrifice for getting of Other good

MRS= MUx/MUy

If the value is 5/ 8 it means there are five cupcakes that are sacrificed for gaining 8 apples

B.

From the calculation it can be clearly seen the value of price elasticity of demand is 6.38

Hete the negative sign shows the inverse relationship between price and quantity demanded

so the price elasticity of demand is absolute value is greater than one

the **demand** is **elastic**

Olivia’s marginal rate of substitution of doughnuts (X) for
bagels (Y) equals 3/5. Explain the meaning of this particular
numerical value for Olivia.

Olivia’s marginal rate of substitution of doughnuts (X) for
bagels (Y) equals 2/7. Explain the meaning of this particular
numerical value for Olivia.

The demand for a product is Qd = 2446 – 95P.
Calculate the price elasticity of demand at a price of $18 and
explain the meaning of this particular numerical value.

Distinguish the marginal rate of substitution from the marginal
utilities of x and y

Rick purchases two goods, food and clothing. He has a
diminishing marginal rate of substitution of food for clothing. Let
x denote the amount of food consumed and y the amount of clothing.
Suppose the price of food increases from Px1 to Px2. For which of
the following cases the price effect equals the substitution
effect?
A.Food is a normal good.
B.Food is neither a normal good nor an inferior good.
C.The income elasticity of demand for food is zero....

Carefully explain the difference between the marginal rate of
substitution and the marginal rate of transformation. Be sure to
explain the economic meaning of each of these terms. What value
does each of them take? (Your answer should be in terms of marginal
utility and/or prices.)

Mary’s utility preference for apples in comparison to all other
goods is described by the function U(x,y) = xy, where x is the
quantity of apples she has available to consume and y is the
aggregate quantity of all other goods. Assume that Mary has 100
apples, $1,000 in cash on hand, and that a mixed bag of all other
goods and services (anything but apples) can be purchased for $1
per bag.
Calculate the numerical value of Mary’s U(x,y)...

For an individual the marginal rate of substitution for good X
and Y is constant and equal to 1 for all combinations of the two
goods in his indifference map. The price of good X is $3 per unit
and the price of good Y is $6 per unit. The individual has a total
budget of $180. Determine the bundle of goods X and Y that maximize
his utility.

Consider a competitive industry with n identical firms each with
marginal cost given by MC=8+8q and average variable costs given by
AVC=8+4q where q is firm output. Market demand is given by QD
(P)=112-P.
(i)Calculate the equilibrium price as a function of n: P(n)
(ii) What is the price and the numerical value of the residual
demand elasticity when n=5?
(iii) What is the price elasticity of demand for the market? Why
is the residual firm demand’s elasticity so much...

1. Consider the following information:
Jessica’s utility function is U(x,
y) = xy.
Maria’s utility function is U(x, y)
= 1,000xy.
Nancy’s utility function is U(x,y) =
-xy.
Chawki’s utility function is U(x,y) = xy -
10,000.
Marwan’s utility function is U(x,y)= x(y +
1).
Which of these persons have the same preferences as Jessica?
2. Suppose the market demand for a product is given by
Qd = 1000 −10P
and the market supply is given by
Qs= −50...

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