## In the context of rational consumer choice (Indifference Curve analysis)

## In the context of rational consumer choice (Indifference Curve analysis)

1. In

the context of rational consumer choice (Indifference Curve analysis) derive a

consumers demand for beer using the Price Consumption Curve.

2. In the context of rational consumer choice (Indifference

Curve analysis) derive a consumers Engel curve for an inferior good using the

Income Consumption Curve. What about the

Engel curve insures that the good you are considering is inferior?

3. Assume

a firm uses capital and labor to produce its product. Further assume that the amount of capital

being used is fixed.

a. In one diagram draw a standard Total Product

of Labor curve where âstandardâ means there is initially increasing returns to

labor followed by diminishing returns and finally decreasing returns. Be sure to identify the quantity of labor

where diminishing returns sets in and where Average Product of Labor is

maximized.

b. In

a second diagram, draw the Marginal Product of Labor and Average Product of

labor that correspond with the Total Product of Labor you drew in part a of

this question.

4. Assume a firm uses capital and labor to

produce its production and that both inputs are variable. In the context of Isoquant analysis, draw a

diagram that initially shows increasing returns to scale followed by constant

returns to scale above a given level of output.

5. Explain the distinction between the concepts

of 1) increasing returns to labor, diminishing returns to labor and decreasing

returns to labor and 2) increasing returns scale, diminishing returns to scale

and decreasing returns to scale.

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