Economics Assignment on Consumer Choice and Budget Constraints

This economics assignment delves into consumer behavior, analyzing budget constraints, indifference curves, and the marginal rate of substitution. It examines how changes in income and prices affect consumer choices, utility maximization, and equilibrium. The assignment includes graphical representations of budget lines and indifference curves to illustrate key economic concepts. Furthermore, it explores production functions, marginal product, and value of marginal product to determine optimal labor requirements and cost minimization strategies for firms. Desklib provides access to similar solved assignments and study resources for students.

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ECONOMICS ASSIGNMENT

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Table of contents
Q 1..............................................................................................................................................3
Q 2..............................................................................................................................................5
Q 3..............................................................................................................................................6
Q 4..............................................................................................................................................7
Reference..................................................................................................................................10

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Q 1
a) The marginal rate of substitution between the golf balls and the red wine is,
(20/30)= 2/3
b)
Figure 1: market trade off budget line
(Source: Developed by the learner)
c)

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Figure 2: The increase in the budget
(Source: Developed by the learner)
With the increase in income to $360, the budget line shifts to the right and the intercept
changes (Nguyen and Wait, 2015).
d)

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Figure 3: the indifference curve
(Source: Developed by the learner)
e)
Figure 4: the shift of the indifference curve
(Source: Developed by the learner)
If the income increases to $360, the budget line moves to the right providing the consumer an
opportunity to increase utility (Cowell, 2018). In this case, the products are normal and
hence with increase in income consumption of both the product will rise.
Q 2
a) the intercept at the X axis is 20. That means with the whole budget 20 units of x can be
bought. Total budget is $2*20= 40
Intercept at Y axis is also 20. Therefore price of Y =$40/20= $2.
b) The available income to spend on both goods is $40.
c) The point A is rational because the utility of the consumer is maximised at that point
subject to the budget line.

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d) if the consumer buys 10 units of Y, he spends $20. Left is $20 which he can use to buy 10
units of X.
e) In this case, the price of Y reduced from $2 to $1 that means a 50% reduction in Y’s price.
The consumer is better off at B than A because B lies in a higher utility curve that increases
consumers’ satisfaction.
Q 3
a)
K* Labor ΔL Q Price of
Output
($)
MPL VMPL APL
4 0 0 0 2 #DIV/0!
4 1 1 50 2 50 100 50
4 2 1 175 2 125 250 87.5
4 3 1 400 2 225 450 133.3333
4 4 1 600 2 200 400 150
4 5 1 750 2 150 300 150
4 6 1 875 2 125 250 145.8333
4 7 1 925 2 50 100 132.1429
4 8 1 950 2 25 50 118.75
4 9 1 945 2 -5 -10 105
Table 1: MP, VMP and AP
(Source: Developed by the learner)
b)
K* Labor ΔL Q Price of
Output
($)
MPL VMPL APL Cost Marginal
cost
Revenue marginal
revenue
4 0 0 0 2 #DIV/0! 0 0
4 1 1 50 2 50 100 50 250 250 100 100
4 2 1 175 2 125 250 87.5 500 250 350 250
4 3 1 400 2 225 450 133.3333 750 250 800 450
4 4 1 600 2 200 400 150 1000 250 1200 400
4 5 1 750 2 150 300 150 1250 250 1500 300
4 6 1 875 2 125 250 145.8333 1500 250 1750 250
4 7 1 925 2 50 100 132.1429 1750 250 1850 100
4 8 1 950 2 25 50 118.75 2000 250 1900 50
4 9 1 945 2 -5 -10 105 2250 250 1890 -10
Table 2: marginal cost and marginal revenue

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(Source: Developed by the learner)
The optimal labour requirement is 2 as here the Marginal cost is equal to marginal revenue.
The equated marginal cost and the marginal revenue is shown in red in the above table
(Serrano and Feldman, 2018). By the word optimal, it means the profit maximisation level of
labour. In other words it is that amount of labour which maximises the profit.
c)
Figure 5: The labour demand curve
(Source: Developed by the learner)
The firm would never hire more than two labours because at that level the Marginal cost is
equal to marginal revenue (Thompson, 2016).
Q 4
a)

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Figure 6: The relevant iso-quant
(Source: Developed by the learner)
The firm would reduce the budget line of the firm given the fixed iso quant to find the cost
minimising output (Chen and Lin, 2015).
b) The objective of the firm is to reduce the iso-cost curve for a given iso-quant. That would
enable the firm to produce at a lower cost.
Figure 7: iso cost and iso quant curves

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(Source: developed by the learner)
c)
Figure 8: Increase in the labour cost
(Source: Developed by the learner)
If the cost of labour increases the slope of the iso cost curve increases and firm needs to come
to a lower iso quant in order to optimise (Roach, Harris and Codur, 2015). At that point the
labour input would reduce.

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Reference
Chen, J. and Lin, T.F., 2015. Effect of peer attendance on college students’ learning
outcomes in a microeconomics course. The Journal of Economic Education, 46(4), pp.350-
359.
Cowell, F., 2018. Microeconomics: principles and analysis. Oxford University Press.
Nguyen, B. and Wait, A., 2015. Essentials of Microeconomics. Routledge.
Roach, B., Harris, J.M. and Codur, A.M., 2015. Microeconomics and the Environment.
Serrano, R. and Feldman, A.M., 2018. A short course in intermediate microeconomics with
calculus. Cambridge University Press.
Thompson, G.E., 2016. Microeconomics: A Computational Approach: A Computational
Approach. Routledge.