Question

In: Economics

20. Which of the following statements is correct regarding cost curves?   There is more than one...

20.

Which of the following statements is correct regarding cost curves?   There is more than one correct answer to this question. You must mark all of the correct answers to receive full credit for this question.

Group of answer choices

The total fixed cost curve is a horizontal line.

The average total cost curve and average variable cost curve get closer to each other as you move from left to right in the graph.

The average fixed cost curve is continually downward sloping.

The total variable cost curve and total cost curve have exactly the same shape.

The marginal cost curve passes through the minimum points of the average total cost curve and average fixed cost curve.

The slope of the total cost curve is marginal cost.

35.

Which of the following is correct regarding indifference curves and budget lines?

Group of answer choices

A decrease in the consumer’s budget causes an indifference curve to shift left.

The actual combination chosen by a consumer is found where an indifference curve crosses over the budget line.

An increase in the consumer’s budget causes the budget line to rotate counter-clockwise.

None of the choices listed is correct.

Along an indifference curve the consumer’s marginal utility is constant.

36.

When a hair salon charged $20 for a haircut it served 300 customers in a day. When it increased the price to $24, it served 240 customers in a day. What is the price elasticity of demand (in absolute value)?

Group of answer choices

1.22

1.00

0.82

1.34

1.65

Solutions

Expert Solution

1. Correct statements are-

  • The total fixed cost curve is a horizontal line because this cost is fixed.
  • The average total cost curve and average variable cost curve get closer to each other as you move from left to right in the graph because output increases cost per unit decreases.
  • The total variable cost curve and total cost curve have exactly the same shape because in TC, TFC is included, so TC is parallely above the TVC.
  • The slope of the total cost curve is marginal cost.

2. A decrease in the consumer’s budget causes an indifference curve to shift left because when with the fall in the budget leads to a shift in the budget constraint to the left, similarly the indifference will shift to the left. As IC is tangent to the budget constraint. The consumer's IC cannot be beyond the budget constraint. Option A is correct.

3. P1 = 20      ;       P2 = 24

Q1 = 300       ;       Q2 = 240

Price elasticity of demand = {(Q2-Q1)/Q1} / {(P2-P1)/P1}

Ed = {(240-300)/300} / {(24-20)/20}

   = {-1/5} / {1/5}

= (-) 1

we neglect the negative sign while calculating the elasticity. Therefore, price elastcity of demand is 1.

Option B is correct.


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