ECON 302-For the following question, assume food is graphed on the vertical axis and Clothing is graphed

| November 24, 2016

Question
(6 points) For the following question, assume food is graphed on the vertical axis and Clothing is graphed on the horizontal axis.
Suppose Ann’s marginal rate of substitution between Food and Clothing is -3.

Also, Bill’s marginal rate of substitution between Food and Clothing is -4.Propose a trade between Ann and Bill that would make them both better off.

(6 points) Complete the following table:Quantity FC VC TC AFC AVC ATC MC0 120 0 — — — —1 150 2 40 3 10

refer attachment

(16 total points) Suppose a firm has a production function given by Q = L1/2K1/2. Therefore,
MPi = ^mandMPK=^U2

The firm can purchase labor.
L at a price w = 36. and capital, K at a price of r = 9.

a) What is the firm’s Total Cost function, TC(Q)?

b) What is the firm’s marginal cost of production?

(10 points) Suppose that a perfectly competitive firm has Fixed Cost = 40 and Variable Cost = 2q2. so that MC = 4q. What is the maximum profit this firm
could make if the market price of the good is $80?

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