Author Question: If a manager is unsure what the entire profit function looks like, then she can A) decrease ... (Read 31 times)

waynest · **on:** Jul 1, 2018

If a manager is unsure what the entire profit function looks like, then she can

A) decrease output slightly to see if profits increase.
B) increase output slightly to see if profits increase.
C) Both A and B.
D) None of the above.

Question 2

George's parents let him use the family car whenever he wants, but require that he pays for all gas he uses. George has been driving the car 100 miles per week.

His parents want to limit how much he drives the family car, but don't want to impose a major burden on his finances. Mom's plan is to charge him a dollar for each ten miles he drives the car (per week), but to increase his allowance by 10. Dad thinks this plan will have no effect on his driving since he is going to get the money back at the end of the week. Who is right? Explain.

bitingbit · **Reply #1 on:** Jul 1, 2018

Answer to Question 1

C

Answer to Question 2

Mom is correct. While it is true that the price and allowance change will allow George to purchase the same bundle of goods as before the changes, his budget constraint is now steeper than before, enabling him to reach a higher indifference curve by driving less often.