1) For each of the following eight statements, state whether you believe them to be true...

 

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1) For each of the following eight statements, state whether you believe them to be true or false, giving a brief rationale for your belief. [Note: if you believe a statement is false, you should explain why, possibly giving a counter-example; but if you believe it to be true, you should state any other assumptions that might be required.] (2.5 marks each; 20 marks in total) a) We assume that preferences are monotone increasing and convex purely for convenience. b) Consumption bundles containing two goods, for which the ratio of the goods' marginal utilities equals the ratio of their prices, may be chosen by a utility maximizing consumer, but not by an expenditure minimizing consumer. c) Any change in Hicksian demands can be broken down into a substitution effect, represented by a movement between two indifference curves, and an income effect, represented as a movement along an indifference curve. d) For a consumer, whose preferences are captured by a Cobb Douglas utility function, the effect on demands of a change in the price of a good demonstrates that there is no substitution effect. e) Changing the values on isoquants without changing the shapes of the isoquants implies no change in the underlying technology so long as the ordering of isoquants is preserved. f) Long run marginal cost curves are increasing for decreasing returns to scale production technologies. g) The more profit a monopolist makes, the more inefficient is the monopoly outcome. h) If two simultaneous move Bertrand price competitors have different constant marginal costs, then any price between their marginal costs could be a Nash equilibrium price. 1) For each of the following eight statements, state whether you believe them to be true or false, giving a brief rationale for your belief. [Note: if you believe a statement is false, you should explain why, possibly giving a counter-example; but if you believe it to be true, you should state any other assumptions that might be required.] (2.5 marks each; 20 marks in total) a) We assume that preferences are monotone increasing and convex purely for convenience. b) Consumption bundles containing two goods, for which the ratio of the goods' marginal utilities equals the ratio of their prices, may be chosen by a utility maximizing consumer, but not by an expenditure minimizing consumer. c) Any change in Hicksian demands can be broken down into a substitution effect, represented by a movement between two indifference curves, and an income effect, represented as a movement along an indifference curve. d) For a consumer, whose preferences are captured by a Cobb Douglas utility function, the effect on demands of a change in the price of a good demonstrates that there is no substitution effect. e) Changing the values on isoquants without changing the shapes of the isoquants implies no change in the underlying technology so long as the ordering of isoquants is preserved. f) Long run marginal cost curves are increasing for decreasing returns to scale production technologies. g) The more profit a monopolist makes, the more inefficient is the monopoly outcome. h) If two simultaneous move Bertrand price competitors have different constant marginal costs, then any price between their marginal costs could be a Nash equilibrium price.

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a We assume that preferences are monotone increasing and convex purely for convenience ANSWER False There are many economic situations in which preferences are not monotone or convex For example peopl... View the full answer