ECON 200 Study Guide - Midterm Guide: Natural Monopoly, Oligopoly, Budget Constraint
14 Dec 2015
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Problem a. maya earns dollars a month and spends her income on clothing and books. The price of books is and the price of clothing is : show maya"s budget constraint in a diagram. Identify the slope and intercepts of this budget constraint: suppose the price of books falls to , maya"s income remains , and the price of clothing remains . Add a line to your first diagram that shows maya"s new budget constraint. Identify the slope and intercepts of this new budget constraint: now suppose maya"s income increases to and prices remain as in part (b). Draw a new diagram that shows maya"s new budget constraint. Over the past few months, two duopolists, axle and borg, have each tried to get a larger share of the market by cutting price. At the current price, each firm has half of the market but negative profits.
