Fun with Microeconomics Part

2
Due Oct 18th

1. A food truck company selling taquitos in LA is a local

monopolist and has only been operating long enough to have
offered 2 different prices for a plate of taquitos. They use to sell
for $6 a plate but now sell for $4 a plate. The decrease in price
has increased sales from 10 plates an hour to 20 plates an hour.

(a) Calculate the price elasticity of demand using the two

data points (we are assuming that demand has not
shifted in this time frame).
(b) Does it seem that the company is able to increase its
revenue by changing its price? Which direction? Explain your
answer.
(c) If the company can increase its revenue, does your
suggested price change necessarily increase profits? Assume
there are no economies of scale. Explain.
 (a) What is the estimated elasticity of demand to see theatre
5. For the following sets of goods draw two indifference curves,
perfor
mances at Cal Poly
U1 and Pomona?
U2, with U2 >U1. Draw each graph placing the amount of
the(b)
firstWhat
goodaction
on thecould CPP take
horizontal to increase the number of
axis.
tickets sold?
(c) Assuming
(a) Electronic that
dancethere are(EDM)
music manyandempty seats in the
dancing. The theatre
consumer likes both and has a diminishing marginalstudents
for every performance and that the performers are rate of
who work foroffree,
substitution would
dancing foryou recommend
EDM. CPP she
Furthermore, make changes
derives no
to maximize profit?
utility from dancing if she’s not listening to EDM and she
derives no utility from listening to EDM if she is not dancing.

3. Graph a typical indifference curve for the following utility

functions and determine whether they obey the assumption of
(b) Reading fantasy novels written by George R.R. Martin
diminishing MRS:
(which the consumer likes) and reading textbooks (which the
(a) U(x, dislikes)
consumer y)=5x + y
(b) U(x, y)=2
√
xy
(c) Snowboard 1/2
rentals
U(x, y)=(x + and snowboard lessons (the consumer
only
y ) needs
1/2 2
22 1/2 to rent one snowboard for every lesson)
(d) ) y)=(x+
U(x,
y
(d) Sugar and Splenda (the consumer likes both and will
(e) U(x, y)=(x2 − y2)1/2 (don’t worry about diminishing
always accept an ounce of Splenda or two ounces of sugar
MRS)
with equal satisfaction)
1/2 1/2
(f) U(x, y)= xy
(e) Fireworks (which the consumer neither likes nor dislikes)
and theme park rides (which the consumer likes)
4. Suppose a consumers preferences for two goods can be
represented by the Cobb-Douglas utility function U(x, y)= Axαyβ,
6. Naomi always eats bagels with 1 ounce of cream cheese. Each
where A, α, and β are positive constants.
bagel eaten in this way provides 15 units of utility. Excess cream
(a) What is MRSx,y?
cheese
2. Afteroryears
excessofbagels
pricesdochanges,
not add to Naomis utility.at
administrators Explain the
Cal Poly
(b) Is MRSx,y diminishing, constant, or increasing as the
nature
Pomona ofobserve
consumerNaomis utility
that xfunction
student
substitutes andanindicate
for ydemand
along for theperformances
theatre
indifference form
curve? of her
indifference
seems to have curve map with
a constant at leastA 3professor
elasticity. labeled inindifference
the Econ
(c) On a graph with x on the horizontal axis and y on the
curves.
department hasdraw
vertical axis, estimated
a typical the following
indifference equation
curve. Indicatefor
on the
your graph whether the indifference curve will intersect either
University
or both axes. D
log(Q )=4.556 − 1.324
log(P )

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