Question

QUESTION 1

Don Cherry's utility function is U = $LaTeX: \sqrt{AB}$ . Which of the following is true?

A) Don's marginal rate of substitution depends on market prices for A and B.

B) Don will consume an equal amount of A and B.

C) If the price of B rises but Don's income also increases, he will buy more B.

D) None of the above

QUESTION 2

Which of the following is true about consumer theory?

A) The shape of indifferent curves is determined by consumer preferences

B) Budget lines are linear because the marginal rate of transformation is constant

C) Both 'A' and 'B'

D) None of the above

QUESTION 3

Which of the following is true about producer theory?

A) Economies of scale typically arises from dividing fixed costs through multiple units of production

B) Economies of scale exist whenever a firm’s average cost curve is decreasing in output

C) Both (a) and (b)

D) None of the above

Answer 1

Ques1: Option A is correct. As the marginal rate of substitution depends upon the relative prices of good A and B which is the utility maximization condition.

Ques2: Option C is correct as the Indifference curve shows the consumer preferences and budget line is linear because the slope of the budget line is constant.

Ques3: Economies of scale means as total output increases, the Average Cost will decrease.

Hence option B is correct.