ECON 11 Study Guide - Midterm Guide: Indirect Utility Function, Economic Surplus, Economic Equilibrium
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The following gure illustrates the marginal costs and average costs for two cases. An agent has preferences over two goods (x1, x2) (cid:60)2. Suppose preferences are complete, tran- sitive and continuous. Suppose they are also monotone and strictly concave, so that whenever x (cid:60) y then x (cid:194) tx + (1 t)y for t (0, 1). That is, the mrs is strictly increasing in x1 along the indi erence curve. The agent has income m and faces positive prices p1 and p2. Question 3 (a) de ne decreasing returns to scale , either in words or mathematically. (b) suppose a rm has one input and one output. The rm also has a convex cost function. A good has market demand curve x = 100 p. there are an unlimited number of potential. Rms with costs curves c(q) = q + q2. How many rms will there be: consumer surplus with ces utility. An agent has utility u(x1, x2) = x1/2.
