Question 3: a) Explain intuitively, why does the marginal cost curve cut the average cost curve...

 

Transcribed Image Text:

Question 3: a) Explain intuitively, why does the marginal cost curve cut the average cost curve at its minimum point? (No graphs required for this question) [4 marks] b) Leon consumes both Good X and Good Y every week. Consider the following options: 30 units of Good X and 12 units of Good Y 20 units of Good X and 22 units of Good Y 30 units of Good X and 20 units of Good Y Option 1: Option 2: Option 3: Leon notices that he prefers option 1 over option 2 but he is indifferent between option 1 and option 3. i) ii) iii) Question 2: a) After a budget presentation, Madhuri said, "I strongly believe that taxing a narrow selection of commodities would be better for individuals". Sudarshan overheard and responded, "No Madhuri, it would actually be better if the government taxes income instead". Which principle agrees with Sudarshan's statement and why? [3 marks] Give one real-life example of Good X and Good Y [2 marks] What type of Good is Good Y? [1 mark] Graphically illustrate Leon's indifference curve using these options. [3 marks] b) List any three (3) ways in which firms' isoquant maps differs from individuals' indifference curve maps? [3 marks] c) Isabella manages a firm that produces high-quality beauty products. Given that her firm operates under a fixed-proportions production, answer the following: i) i) Can Isabella's firm exhibit increasing or decreasing returns to scale? Give a reason for your answer. [2 marks] If the price of an input used by Isabella's firm were to fall, would there be any substitution and output effect? Give a reason for your answer. [2 marks] Question 3: a) Explain intuitively, why does the marginal cost curve cut the average cost curve at its minimum point? (No graphs required for this question) [4 marks] b) Leon consumes both Good X and Good Y every week. Consider the following options: 30 units of Good X and 12 units of Good Y 20 units of Good X and 22 units of Good Y 30 units of Good X and 20 units of Good Y Option 1: Option 2: Option 3: Leon notices that he prefers option 1 over option 2 but he is indifferent between option 1 and option 3. i) ii) iii) Question 2: a) After a budget presentation, Madhuri said, "I strongly believe that taxing a narrow selection of commodities would be better for individuals". Sudarshan overheard and responded, "No Madhuri, it would actually be better if the government taxes income instead". Which principle agrees with Sudarshan's statement and why? [3 marks] Give one real-life example of Good X and Good Y [2 marks] What type of Good is Good Y? [1 mark] Graphically illustrate Leon's indifference curve using these options. [3 marks] b) List any three (3) ways in which firms' isoquant maps differs from individuals' indifference curve maps? [3 marks] c) Isabella manages a firm that produces high-quality beauty products. Given that her firm operates under a fixed-proportions production, answer the following: i) i) Can Isabella's firm exhibit increasing or decreasing returns to scale? Give a reason for your answer. [2 marks] If the price of an input used by Isabella's firm were to fall, would there be any substitution and output effect? Give a reason for your answer. [2 marks]

Answer rating: 100% (QA)

Answer a The marginal cost curve cuts the average cost curve at its minimum point because t... View the full answer