mean: 27.0, max: 46

Econ 301(sec 2) Midterm 1

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>=45 40-44 35-39 30-34 25-29 20-24 15-19 10-14 <10

A+ A: A-- B+ B B-- C D F

Grade

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Mean: 27.0, Max: 46This is just a suggested grade based on your midterm performance…

• An answer key to Midterm I is available on our course website.

• If you feel you didn’t do well in the midterm, work with your classmates for homework and use my office hours to improve your understanding.

Q 2

• At utility-maximizing consumption, marginal utility per dollar should be equalized over all goods!

• If , then spend one more dollar

on bread and one less dollar on juice; your utility will increase!

Gasoline

Gasoline

Juice

Juice

Bread

Bread

P

MU

P

MU

P

MU

Juice

Juice

Bread

Bread

P

MU

P

MU

Q 3Labor Total output Marginal product Average product

input (Total product) of labor of labor

0 0 - -

1 (a) (b) 50

2 (c) 30 (d)

3 90

4 24

5 4

6 96

Q4

(a)

- To draw demand curves, make sure you find the right intercepts and slopes!

- When adding up the demands in West and East P., you should do so horizontally

Q5 (a)

P

Q Food ($)

OtherConsumption

($)

U2A

U1

B

•With cash instead of food stamps, the family chooses basket C on U3, which is preferred to point B on U2, the utility-maximizing consumption given food stamps.

CU3

• Next Aplia HW: “The Cost of Production in the Short Run II” due on Sunday Oct 8•“The Cost of Production in the Long Run II” will be due next week

Q5 (b)

Do food stamps ensure that low income families increase their consumption of food? Explain. You may use graphs.

The answer is: Food stamps do NOT NECESSARILY ensure that low income families increase their consumption of food.

The point of this question is that consumtion of a good does not always increase when income increases (i.e. the income effect can be negative, or equivalently, a good may be an inferior good.) This possible exists regardless of whether income increase is due to cash subsity or food stamps.

Q5 (b)

P

Q Food ($)

OtherConsumption

($)

U2

A

U1

B

•If food is an inferior good over the relevant income range, then food consumption with food stamps (F2) can be less than that without (F1).

F2 F1

• Note that we are not saying food stamp is a bad idea (or a good idea)

• Why food stamp could be an issue: recent trends in obesity and nutrition

• Concerns about midterm? Let me know

• Today my office hour is shorter than scheduled: 1:30-2:30.

Ch 7 Cost of production (cont.)

• Recall the definition of various costs in the short run:– Total Cost (TC)– Fixed Cost (FC), Variable Cost (VC)– Marginal Cost (MC)– Average Fixed Cost (AFC), Average Variable

Cost (AVC). Average Total Cost (ATC)

Fixed Cost

100 100 100 100 100 100 100 100 100 100 100

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120

0 1 2 3 4 5 6 7 8 9 10

Unit of output

Co

sts Fixed Cost

Average Fixed Cost

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100

120

0 1 2 3 4 5 6 7 8 9 10

Unit of output

Co

sts

Average Fixed Cost100/1=100

100/2=50

100/4=25

FC and AFC

FC, VC and TC

025

45 5777

102136

170

226

298

390

100125

145 157177

202236

270

326

398

490

0

100

200

300

400

500

600

0 1 2 3 4 5 6 7 8 9 10

Unit of output

Co

sts

Fixed Cost

Variable Cost

Total Cost

Marginal Cost

2520

12

2025

34 34

56

72

92

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Unit of output

Co

sts

Marginal Cost

(=125-100)

226-170 = 326-270 =

Marginal cost

FC, VC and TC

025

45 5777

102136

170

226

298

390

100125

145 157177

202236

270

326

398

490

0

100

200

300

400

500

600

0 1 2 3 4 5 6 7 8 9 10

Unit of output

Co

sts

Fixed Cost

Variable Cost

Total Cost

MC, AFC, AVC, and ATC

0

25 22.5 19 19.25 20.4 22.67 24.3 28.2533.1

39

125

72.5

52.344.25 40.4 39.3 38.6 40.75 44.2

49

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100

120

140

0 1 2 3 4 5 6 7 8 9 10

Unit of output

Co

sts

Average Variable Cost

Average Total Cost

=125/1

=145/2

326/8

226/8

Average total cost (ATC)

and

Average variable cost (AVC)

FC, VC and TC

100125

145 157177

202236

270

326

398

490

0

100

200

300

400

500

600

0 1 2 3 4 5 6 7 8 9 10

Unit of output

Co

sts

Fixed Cost

Variable Cost

Total Cost

MC, AFC, AVC, and ATC

0

20

40

60

80

100

120

140

0 1 2 3 4 5 6 7 8 9 10

Unit of output

Co

sts

Marginal Cost

Average Fixed Cost

Average Variable Cost

Average Total Cost