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Economics Homework 5 - Model (view source)
Revision as of 23:11, April 1, 2013
, 23:11, April 1, 2013no edit summary
1. Suppose the cross elasticity of demand for goods A and B is +3.8, and for goods X and Y is -2.7. What can you conclude about the relationship of the goods A and B, and of X and Y (i.e., are they substitutes or complements)?
1. Suppose the cross elasticity of demand for goods A and B is +3.8, and for goods X and Y is -2.7. What can you conclude about the relationship of the goods A and B, and of X and Y (i.e., are they substitutes or complements)?
:The positive cross-elasticity for goods A and B mean that as the price of one good increases (and thus its demand decreases), then the demand for the other increases. They must be substitutes because the demand for one good increases as the demand for the other good decreases. The negative cross-elasticity for goods X and Y mean that as the price of one increases (and thus its demand decreases), then the demand for the other decreases. They must be complements because the demand for one good increases as the demand for the other good increases.
:The positive cross-elasticity for goods A and B mean that as the price of one good increases (and thus its demand decreases), then the demand for the other good increases. '''''A and B must be substitutes because the demand for one good increases as the demand for the other good decreases'''''. The negative cross-elasticity for goods X and Y mean that as the price of one good increases (and thus its demand decreases), then the demand for the other good decreases. '''''X and Y must be complements because the demand for one good increases as the demand for the other good increases'''''.
2. Suppose it costs you $500 to make each of your first 5 units, then $200 to make each of your next 5 units, and then $100 to make each of your next 5 units. Costs do not decrease further for you. What is the marginal cost for you to make another unit, after you have made 15 units? What is your overall average cost per unit after you make your 16th unit? Compare the two and comment on how whether they are equal, and why.
2. Suppose it costs you $500 to make each of your first 5 units, then $200 to make each of your next 5 units, and then $100 to make each of your next 5 units. Costs do not decrease further for you. What is the marginal cost for you to make another unit, after you have made 15 units? What is your overall average cost per unit after you make your 16th unit? Compare the two and comment on how whether they are equal, and why.