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##### Belen consumes only tapas and ca

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**Question**

1. Belen consumes only tapas and ca?as. At her current consumption bundle, her marginal utility from tapas is 10 and from ca?as is 5. Each tapa costs ?5 and each ca?a costs ?1. Is she maximizing her utility? If she is not, how can her utility be increased while maintaining total expenditure?;2. Jes?s? utility function is U = BC, where B = bocadillos per week, and C = packs of cigarettes per week. Here MUB = C and MUC = B. What is his marginal rate of substitution if bocadillos are on the vertical axis and cigarettes are on the horizontal axis? Jes?s? income is ?120, the price of a bocadillo is ?2, and that of a pack of cigarettes is ?1. How many bocadillos and how many packs of cigarettes does Jes?s consume to maximize his utility? When a new tax raises the price of a bocadillo to ?3, what is his new optimal bundle? Illustrate your answers with a graph.;3. What happens to the budget line if the government applies a specific tax of $1/liter on gasoline but does not tax other goods? What happens to the budget line if the tax only applies to purchases of gasoline in excess of 40 liters per week?;4. Is a poor person more likely to benefit from $100 a month worth of food stamps (that can only be used to buy food) or $100 a month worth of clothing stamps (that can only be used to buy clothing)? Why? (Note: ignore black markets for sales of these stamps).;5. Each extra worker produces an extra unit of output, up to eight workers. After eight, no additional output is produced. Draw the total product of labor, average product of labor, and the marginal product of labor curves.;6. Enrique?s business produces sangria using labor, wine and fruits. He can manufacture 25 liters a day with one worker and 35 with two workers. Does his production process illustrate diminishing returns to scale or diminishing marginal returns to scale? What is a plausible explanation for why output does not increase proportionately with the number of workers?;7. Draw a circle on a diagram with labor services on one axis and capital services on the other. This circle represents all the combinations of labor and capital that produce 100 units of output. Now draw the isoquant for 100 units of output.;8. What is the production function if L and K are perfect substitutes and each unit of q requires 1 unit of L or 1 unit of K (or a combination of these inputs that adds to 1)?

Paper#27968 | Written in 18-Jul-2015

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