Review Intermedite Microeconomics

Part 1: consumer behavior (30)

- Budget constraint (write the function of budget constraint)
- Utility (how) (cobb – douglas)
- The law of marginal utility
- Intertemporal choice (calculating ex)
- Uncertainty ( short answer)/ insurance
- Demand (perfect complements and perfect substitutes)
Part 2: cost production (20)
- Technology
- Cost minimization/ profit maximization
- Returns to scale
Part 3: producer behavior (30)
- Monopoly (monopsony)
- oligopoly
- perfect competition
- game theory
Part 4: general equilibrium (20) (chap: exchange/ production/ public good)
- robinson crusoe economy
- pareto efficiency
Questions
Part 1: consumer behavior (30)
- Budget constraint (write the function of budget constraint)
- Utility (how) (cobb – douglas)
- The law of marginal utility
- Intertemporal choice (calculating ex)
- Uncertainty ( short answer)/ insurance
- Demand (perfect complements and perfect substitutes)

1. what happens to the budget line if the price of good 2 increase, but the price of
good 1 and income stay the same?
 Answer: the vertical intercept decreases and the horizontal intercept stays the
same. So, the budget line will be flatter.
2. The budget function is p1x1 + p2x2 = m. the lump – sum tax of u, a quantity tax
on good 1 of t, a quantity subsidy on good 2 of s. what is the formula for the new
budget line?
(content:
Budget constraint: p1x1 + p2x2 = m
Change: price changes (p1; p2; p1 and p2) and income
New budget equation?
Graph (…slide 9 – 36 chap2 ) (shift to the left/ right)

3. Can you explain the meaning of MRS and the law of diminishing of marginal
utility?
4. A monotonic transformation of a utility function doesn’t change the MRS. True or
false? (True) (MRS is measured along an IC and utility functions constant along an
IC)
5. Ex 2 (Minh’s utility function …)
6. If two goods are perfect complements, what is the demand function for good 2?
(hint: assumme the value of income, price of x1 and x2…)
7. If the preferences are concave will the consumer ever consume both of the goods
together? (demand: chap 6/ engel curve/ demand curve)
(No. concave pre can only give rise to optimal consumption bundles that regard
zero consumption of one of the goods)
8. As the interest rate rises, does the intertemporal budget constraint become
stepper of flatter? (chap 10)
9. Draw a utility function that exhibits risk loving behavior for small gambles and
risk averse behavior for larger gambles/ insurance (chap 12)
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Part 2: cost production (20)
- Technology
- Cost minimization
- Returns to scale
1. Give the function that is increasing returns to scale, explain.
2. Cobb Y = x0,2 z0,9 => returns to scale???
3. In a production process is it possible to have decreasing marginal product in an
input and yet increasing returns to scale? (yes)
 4. in the short run, if the price of the fixed factor is increased, what will happen to
profits? Decrease (cost and II = TR – TC)
5. If a firm is increasing returns to scale, and the price remained fixed and if this firm
doubled its scale of operation. What happens to its profits? Increase (graph/ ATC)
Part 3: producer behavior (30) – chap 23,24…
- Monopoly (monopsony)
- oligopoly
- perfect competition
- game theory
II = TR – TC
TR > TC => II > 0
TR = TC => II = 0
TR < TC => II < 0
 TR = TC  P = ATC
P = AVC???

1. Which market structures have deadweight loss?/ market power/ collusion/

cartel/ (monopony/ oligopoly/ monopolistic competition)
2. Describe the maximizing profit process of the firm in perfect competition via
graph.
3. Ex
(continue)