Question 1

Suppose a manager's preferences depend only on profit.Such a manager will then have an indifference curve that
A)is tangent to the profit curve somewhere between quantities of 0 and 2.5.
B)is tangent to the profit curve somewhere between quantities of 2.5 and 5.
C)is tangent to the profit curve at a quantity exactly equal to 2.5.
D)intersects the profit curve at a quantity exactly equal to 5.

Accepted Answer

Since the manager's preferences depend only on profit, the indifference curve will be tangent to the profit curve where profit is maximized. From the given options, the profit curve reaches its maximum value at a quantity of 2.5. Therefore, the indifference curve will be tangent to the profit curve at a quantity exactly equal to 2.5. Hence, the answer is option C.

Question 2

A price increase causes a consumer's "real" income to:
A)increase.
B)decrease.
C)remain unchanged.
D)decrease or increase depending on the size of the price change.

Accepted Answer

A price increase decreases the purchasing power of the consumer's income, thus decreasing their real income.

Question 3

Suppose we are given that the value of a particular utility function is a constant.That is, U(X,Y) = c.Then, the total derivative of this relation is
A)($\partial$U/$\partial$X)dX + ($\partial$U/$\partial$Y)dY = c.
B)($\partial$U/$\partial$X)dX + ($\partial$U/$\partial$Y)dY = 0.
C)($\partial$Y/$\partial$X)dX + ($\partial$X/$\partial$Y)dY = 0.
D)($\partial$Y/$\partial$X)dU + ($\partial$X/$\partial$Y)dU = c.

Accepted Answer

Since the utility function is a constant, its total derivative is 0. Using the total derivative rule, we have:

dU = (F1F1F1S1F1F1F10U/F1F1F1S1F1F1F10X)dX + (F1F1F1S1F1F1F10U/F1F1F1S1F1F1F10Y)dY

But since U is constant, dU = 0, which implies

(F1F1F1S1F1F1F10U/F1F1F1S1F1F1F10X)dX + (F1F1F1S1F1F1F10U/F1F1F1S1F1F1F10Y)dY = 0.

Therefore, the correct choice is B.

Question 4

A stockholder named Sue must cast a vote for chair of the board.Sue prefers Mr.Lee to Ms.Doe, Ms.Doe to Mr.James, and Mr.James to Mr.Lee.
a.Are Sue's preferences consistent with our assumptions about consumer behavior? Explain.
b.If all stockholders had the same preferences as Sue, who would win the appointment as chair of the board? Explain.

Accepted Answer

The answer of A stockholder named Sue must cast a...

Question 5

Over the past decade medical costs have increased more rapidly than other prices.In order to illustrate how rising medical costs have affected consumer alternatives, let X represent the quantity of medical services, and let Y represent the quantity of other goods.Furthermore, let income (M) be measured in hundreds of dollars, the price of medical services and other goods in terms of dollars per minute, with

Accepted Answer

The answer of Over the past decade medical costs have...

Question 6

What is the maximum amount of good X that can be purchased if X and Y are the only two goods available for purchase and P_x = $10, P_y = $20, Y = 0, and M = 400? A)0. B)20. C)40. D)30.

Accepted Answer

Since Y is not purchased, the entire budget (M = $400) can be allocated towards purchasing X. Using the given price and budget constraints, we can solve for the maximum amount of X that can be purchased: P_x * X <= M $10 * X <= $400 X <= 40 Therefore, the maximum amount of X that can be purchased is 40.

Question 7

Suppose an individual's marginal rate of substitution is three slices of pizza for one beer at the present bundle of beer and pizza she is consuming.If the price of beer is $1.00 and the price of a slice of pizza is $1.50, is the consumer maximizing her welfare? If not, how should she change her consumption?

Accepted Answer

The answer of Suppose an individual's marginal rate of substitution...

Question 8

Natalie is always willing to give up 10 ounces of licorice for 1 ounce of chocolate.Mitchell, on the other hand, will always give up 10 ounces of chocolate for 1 ounce of licorice.Based on this information, answer the following questions:
a.Do Natalie's preferences exhibit a diminishing marginal rate of substitution between chocolate and licorice? Why or why not?
b.Assuming that Natalie and Mitchell have the same amount of money to spend on chocolate and licorice, who will purchase the most licorice? Why?

Accepted Answer

The answer of Natalie is always willing to give up...

Question 9

Airlines give away millions of tickets each year through their frequent flyer programs, with the typical airline awarding a free ticket for each 25,000 miles flown on the airline.The average airline ticket costs $500 and is for a 2,500-mile round trip.Given this information, evaluate the following statement: Airlines could have the same effect on demand by eliminating their frequent flyer programs and simply lowering the average ticket price by 10 percent.

Accepted Answer

The answer of Airlines give away millions of tickets each...

Question 10

What is the maximum amount of good Y that can be purchased if X and Y are the only two goods available for purchase and P_x = $10, P_y = $20, X = 0, and M = 400? A)10. B)20. C)5. D)0.

Accepted Answer

Given that the price of good Y (P_y) is $20 and the total money available (M) is $400, the maximum amount of good Y that can be purchased is calculated by dividing the total money by the price of good Y: $400 / $20 = 20.

Question 11

If the price of a good Y falls, then the marginal rate of substitution between X and Y
A)increases.
B)decreases.
C)remains the same.
D)depends on whether X and Y are normal or inferior goods, and cannot tell without that information.

Accepted Answer

If the price of good Y falls, it becomes relatively cheaper compared to good X. This leads consumers to substitute good X for good Y, which means they are willing to give up less of good X for a unit of good Y. Hence, the marginal rate of substitution between X and Y increases.

Question 12

What is the maximum amount of good X that can be purchased if X and Y are the only two goods available for purchase and P_x = $10, P_y = $20, Y = 5, and M = 400? A)80. B)20. C)40. D)30.

Accepted Answer

The answer of What is the maximum amount of good...

Question 13

Suppose a consumer has M = $200 to spend on two goods, X and Y.If the per-unit prices of X and Y are respectively given by P_X = $2 and P_Y = $4, then to maximize utility subject to a budget constraint can be solved by form which of the following Lagrangian? A)? = U(X,Y) + $\lambda$(200 - 2X - 4Y). B)? = U(X,Y) + $\lambda$(200 - 2P_X - 4P_Y). C)? = (200 - 2X - 4Y) + $\lambda$U(X,Y). D)? = U(X,Y) + $\lambda$(2X - 4Y + 200).

Accepted Answer

The Lagrangian for this optimization problem should have the form: 
ℒ = U(X,Y) + λ(200 - P1X - P2Y)
where λ is the Lagrange multiplier, and P1 and P2 are the prices of goods X and Y, respectively. 
Substituting the given prices, we get:
ℒ = U(X,Y) + λ(200 - 2X - 4Y)
Option A is the only one that matches this form. The correct Lagrange multiplier to use with this Lagrangian is λ/2, but this is not specified in any of the answer choices.

Question 14

Suppose the following Lagrangian is formed to maximize a consumer's utility subject to her budget constraint: ? = U(X,Y) + $\ell$(1,000 - 50X - 5Y).The first-order conditions for this problem imply A)MRS = 10. B)P_X / P_Y = 10. C)($\partial$U/$\partial$X) / ($\partial$U/$\partial$Y) = 10. D)All of the statements associated with this question are correct.

Accepted Answer

The first-order conditions for utility maximization subject to a budget constraint involve setting the marginal rate of substitution (MRS) equal to the ratio of the prices of the two goods, which is given by the coefficients of X and Y in the budget constraint (50 and 5, respectively). Thus, MRS = 10. All options essentially express this relationship in different notations, making them all correct interpretations of the first-order condition.

Question 15

The income effect isolates the change in the consumption of a good caused by the change in:
A)"real" income.
B)relative prices of two goods.
C)consumer preferences.
D)none of the statements associated with this question are correct.

Accepted Answer

The income effect measures the change in the consumption of a good caused by a change in real income, holding the relative prices of all goods constant. Therefore, choice A is correct. Choice B refers to the substitution effect, not the income effect. Choice C is not directly related to the income effect. Choice D is incorrect as the income effect is a well-established economic concept.

Question 16

Clothing stores frequently run "sales" where they discount clothing prices by as much as 25 percent.What impact, if any, would you expect these "sales" to have on a store that specializes in selling shoes produced by Rockport?

Accepted Answer

The answer of Clothing stores frequently run "sales" where they...

Question 17

If the price of good X increases, what will happen to the budget line?
A)It will have a parallel shift inward.
B)It will have a parallel shift outward.
C)It will become steeper.
D)It will become flatter.

Accepted Answer

When the price of good X increases, the budget line becomes steeper because the consumer can now afford less of good X relative to good Y, assuming the price of good Y remains constant. This change reflects a decrease in the relative affordability of good X.

Question 18

Suppose a manager's preferences depend only on quantity.Such a manager will then have an indifference curve that
A)is tangent to the profit curve somewhere between quantities of 0 and 2.5.
B)is tangent to the profit curve somewhere between quantities of 2.5 and 5.
C)intersects the profit curve at a quantity exactly equal to 2.5.
D)intersects the profit curve at a quantity exactly equal to 5.

Accepted Answer

The answer of Suppose a manager's preferences depend only on...

Question 19

What is the maximum amount of good Y that can be purchased if X and Y are the only two goods available for purchase and P_x = $10, P_y = $20, X = 20, and M = 400? A)10. B)20. C)5. D)0.

Accepted Answer

The answer of What is the maximum amount of good...

Question 20

Suppose that a consumer's preferences are well behaved in that properties 4-1 - 4-4 are satisfied and the initial equilibrium consumption bundle consists of 10 units of X and 25 units of Y.If P_Y increases such that the new equilibrium consumption bundle is 15 units of X and 10 units of Y, then goods X and Y are A)complements. B)substitutes. C)normal goods. D)unrelated.

Accepted Answer

Since the increase in the price of good Y leads to a decrease in the quantity demanded of good Y and an increase in the quantity demanded of good X, goods X and Y are substitutes.

Quiz 4: The Theory of Individual Behavior

Suppose a manager's preferences depend only on profit.Such a manager will then have an indifference curve that

A price increase causes a consumer's "real" income to:

Suppose we are given that the value of a particular utility function is a constant.That is, U(X,Y) = c.Then, the total derivative of this relation is

What is the maximum amount of good X that can be purchased if X and Y are the only two goods available for purchase and P_x = $10, P_y = $20, Y = 0, and M = 400?

What is the maximum amount of good Y that can be purchased if X and Y are the only two goods available for purchase and P_x = $10, P_y = $20, X = 0, and M = 400?

If the price of a good Y falls, then the marginal rate of substitution between X and Y

What is the maximum amount of good X that can be purchased if X and Y are the only two goods available for purchase and P_x = $10, P_y = $20, Y = 5, and M = 400?

Suppose a consumer has M = $200 to spend on two goods, X and Y.If the per-unit prices of X and Y are respectively given by P_X = $2 and P_Y = $4, then to maximize utility subject to a budget constraint can be solved by form which of the following Lagrangian?

Suppose the following Lagrangian is formed to maximize a consumer's utility subject to her budget constraint: ? = U(X,Y) + $\ell$ (1,000 - 50X - 5Y) .The first-order conditions for this problem imply

The income effect isolates the change in the consumption of a good caused by the change in:

Clothing stores frequently run "sales" where they discount clothing prices by as much as 25 percent.What impact, if any, would you expect these "sales" to have on a store that specializes in selling shoes produced by Rockport?

If the price of good X increases, what will happen to the budget line?

Suppose a manager's preferences depend only on quantity.Such a manager will then have an indifference curve that

What is the maximum amount of good Y that can be purchased if X and Y are the only two goods available for purchase and P_x = $10, P_y = $20, X = 20, and M = 400?

Quiz 4: The Theory of Individual Behavior

Suppose a manager's preferences depend only on profit.Such a manager will then have an indifference curve that

A price increase causes a consumer's "real" income to:

Suppose we are given that the value of a particular utility function is a constant.That is, U(X,Y) = c.Then, the total derivative of this relation is

What is the maximum amount of good X that can be purchased if X and Y are the only two goods available for purchase and Px = $10, Py = $20, Y = 0, and M = 400?

What is the maximum amount of good Y that can be purchased if X and Y are the only two goods available for purchase and Px = $10, Py = $20, X = 0, and M = 400?

If the price of a good Y falls, then the marginal rate of substitution between X and Y

What is the maximum amount of good X that can be purchased if X and Y are the only two goods available for purchase and Px = $10, Py = $20, Y = 5, and M = 400?

Suppose a consumer has M = $200 to spend on two goods, X and Y.If the per-unit prices of X and Y are respectively given by PX = $2 and PY = $4, then to maximize utility subject to a budget constraint can be solved by form which of the following Lagrangian?

Suppose the following Lagrangian is formed to maximize a consumer's utility subject to her budget constraint: ? = U(X,Y) + ℓ\ellℓ (1,000 - 50X - 5Y) .The first-order conditions for this problem imply

The income effect isolates the change in the consumption of a good caused by the change in:

Clothing stores frequently run "sales" where they discount clothing prices by as much as 25 percent.What impact, if any, would you expect these "sales" to have on a store that specializes in selling shoes produced by Rockport?

If the price of good X increases, what will happen to the budget line?

Suppose a manager's preferences depend only on quantity.Such a manager will then have an indifference curve that

What is the maximum amount of good Y that can be purchased if X and Y are the only two goods available for purchase and Px = $10, Py = $20, X = 20, and M = 400?

What is the maximum amount of good X that can be purchased if X and Y are the only two goods available for purchase and P_x = $10, P_y = $20, Y = 0, and M = 400?

What is the maximum amount of good Y that can be purchased if X and Y are the only two goods available for purchase and P_x = $10, P_y = $20, X = 0, and M = 400?

What is the maximum amount of good X that can be purchased if X and Y are the only two goods available for purchase and P_x = $10, P_y = $20, Y = 5, and M = 400?

Suppose a consumer has M = $200 to spend on two goods, X and Y.If the per-unit prices of X and Y are respectively given by P_X = $2 and P_Y = $4, then to maximize utility subject to a budget constraint can be solved by form which of the following Lagrangian?

Suppose the following Lagrangian is formed to maximize a consumer's utility subject to her budget constraint: ? = U(X,Y) + $\ell$ (1,000 - 50X - 5Y) .The first-order conditions for this problem imply

What is the maximum amount of good Y that can be purchased if X and Y are the only two goods available for purchase and P_x = $10, P_y = $20, X = 20, and M = 400?