Do problems 2.2, 2.4, 2.6, 2.7. 2.10, 2.11, 2.12 and 2.13
in the textbook, Chapter 2. Here are some additional problems.
1)
A traveling salesman is deciding how to allocate hours of
his time between Noho or Soho. In Noho, his average sales per hour are
given by the following relationship: N = 20 – 2h, where N is dollar revenues in
Noho (per hour) and h is hours spent in Noho. Likewise, in Soho, his average
sales per hour is given by the relationship
S = 14 – h, where S is dollar
revenues in Soho and h is the number of hours spent in Soho.
a)
Make a table showing the total sales for each hour spent in
Noho and Soho (up to a maximum of ten hours each).
b)
Using the table, figure out how our salesman would allocate
a total budget of 5 hours between Soho and Noho. Ten hours?
c)
Make sure you appreciate the difference between average and
marginal returns, as discussed in class.
2)
Use supply and demand curves to predict what will happen in
each of the following examples involving the market for beef in the U.S. In
each case, identify any factors affecting supply or demand that have changed,
and indicate how the equilibrium price and quantity of beef will change.
a)
A new growth hormone is found which makes cattle grow faster
and yet imposes no health hazard on consumers.
b)
The surgeon general reports that beef is high in a growth
hormone which has been shown to cause cancer.
c)
Average income in the U.S. drops as the result of a
recession.
d)
The price of corn used as feed for cattle goes up.
e)
The price of chickens drops.
3)
Draw indifference curves for the following preferences over
two goods: hamburgers and beer.
a)
Al likes beer but hates hamburgers;
b)
Jughead likes hamburgers but doesn’t care whether or not he
drinks beer.
c)
Betty is indifferent between bundles of either 3 beers or 2
hamburgers. Her preferences do not change as she consumes more of either food.
d)
Chris eats 1 hamburger and washes it down with 1 beer. He will not consume an additional unit of one
item without an additional unit of the other.
4) Suppose Jones and Smith have each decided to
allocate $1,000 per year on liquid refreshments in the form of alcoholic and non-alcoholic
drinks. Jones and Smith differ substantially in their preferences for these two
forms of refreshment. While both would like some of each drink, Jones strongly
prefers alcoholic to non-alcoholic drinks, while Smith strongly prefers the
non-alcoholic option.
a)
Draw a set of indifference curves for Jones and a second set
for Smith.
b)
Discuss why the two sets of curves are different from each
other using the concept of marginal rate of substitution.
c)
Suppose both Smith and Jones face the same prices for their
refreshments. At their respective equilibrium bundles will their marginal rates
of substitution be the same or different? Explain.