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Author Question: The figure above contains several budget lines for Sarah, who uses her income to purchase two goods, ... (Read 82 times)

tfester

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on: Jun 29, 2018
The figure above contains several budget lines for Sarah, who uses her income to purchase two goods, cheese and crackers.
 
  a) A movement between which two budget lines represents an increase in income?
  b) A movement between which two budget lines represents an increase in the price of a pound of cheese?
  c) A movement between which two budget lines represents an increase in the price of a box of crackers?

Question 2

A firm increases both its plant and its labor force by the same percentage and its average total costs remain unchanged. Is the firm experiencing increasing returns to scale, constant returns to scale, or decreasing returns to scale?
 
  What will be an ideal response?


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joechoochoy

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Reply #1 on: Jun 29, 2018
Answer to Question 1

a) A movement from BL1 to BL3 shows an increase in income.
b) A change from BL2 to BL1 shows an increase in the price of a pound of cheese.
c) A change from BL3 to BL2 shows an increase in the price of a box of crackers.

Answer to Question 2

The firm is experiencing constant returns to scale.


tfester

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Reply #2 on: Jun 29, 2018
Thank you :)


joechoochoy

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Reply #3 on: Jun 29, 2018
Happy to help you


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