Question

This is very important. You must follow my instructions exactly. There are 9 questions. Each question requires you to answer TRUE or FALSE followed by an explanation. If you do not do this I will interpret your answer as I see it, so the word TRUE or FALSE is critical as a start to each question. The second important thing is to put each answer below the relevant question, not all at the end of the exam. So, you will send me the word doc. With your answers included.

Finally, you will have 90 minutes to complete and send the exam. For every extra minute you take, I will subtract one point.

1. Lisa, in attempting to maximize total utility is constrained by her budget.
2. Lisa, in choosing between two goods, wants to choose where MUa=MUb.
3. MU theory predicts and reinforces the law of demand , law of supply, and also whether a good is normal or inferior.
4. In the short run, both capital and labor are variable.
5. As more sweaters are produced, marginal product rises indefinitely.
6. Firms want to produce along the diseconomies of scale range of the LAS.
7. Accounting profit and economic profit both consider explicit and implicit cost.
8. More than one method of production can be economically efficient when there are 4 possible methods.
9. In the principle agent problem, the principle must be made to act in the best interest of the agent.

AFTER PLACING EACH ANSWER BELOW EACH RELATED QUESTION, CHECK THAT YOU STARTED EACH ANSWER WITH TRUE, IF TRUE, OR FALSE, IF FALSE.    

Answer 1

1. Lisa, in attempting to maximize total utility is constrained by her budget.

True. total utility refers to the satisfaction derived from consumption of a good. The number of units that Lisa can consume is determined by the budget she has. total utility is maximised as more and more units are consumed. hence the budget acts as a constraint in maximisation.

2. Lisa, in choosing between two goods, wants to choose where MUa=MUb.

True. the optimum utility lies where marginal utility derived from both the goods are equal. this is because both goods derive same level of satisfaction.

3. MU theory predicts and reinforces the law of demand , law of supply, and also whether a good is normal or inferior.

False. Marginal Utility does not reinforce the law of supply. it reinforces only the law of demand that is as per the law of demand, the consumers will buy more goods at a lower price as the marginal utility increases and also if the good is normal good.

4.In the short run, both capital and labor are variable.

False. in short run, only the labour is variable. capital is fixed and changes only in the long run.

5. As more sweaters are produced, marginal product rises indefinitely.

False. the marginal product increases but upto a point . hence it cannot increase indefinitely.

6. Firms want to produce along the diseconomies of scale range of the LAS.

False. in the long run, firm wants to produce at the economies of scale in order to cover its fixed and variable costs.

7. Accounting profit and economic profit both consider explicit and implicit cost.

False. accounting profit is considered only explicit whereas economic profit is both implicit and explicit.

8. More than one method of production can be economically efficient when there are 4 possible methods.

True. as long as the resources are used judiciously and the production process gives the optimum level of output, any number of methods can be used.

9. In the principle agent problem, the principle must be made to act in the best interest of the agent.

False. in a prinicipal agent problem, one party who is the prinicipal acts of the best self interest without taking care of the agent's interest.