Q1. Suppose a consumer has 600 dirhams to spend on goods X and Y. the market prices for these goods are P_x = 10 and P_y = 40

1. Write the equation for the consumer budget line.

1. Illustrate the consumer’s opportunity set

1. Show how the consumer’s budget set changes when the P_x increases to 20.

1. How does this change affect the MRS between the two goods?

1. Q2. The manager of a national retailing outlet recently hired an economist to estimate the firm’s production function. Based on the economist’s report, the manager now knows that the firm’s production function is given by and that capital is fixed at 1 unit.

1. a) Calculate the average product of labor when 9 units of labor are utilized.

1. b) Calculate the marginal product of labor when 9 units of labor are utilized.

1. c) Suppose the firm can hire labor at a wage of $10 per hour and output can be sold at a price of $100 per unit. Determine the profit-maximizing levels of labor and output.

1. d) What is the maximum price of capital at which the firm will still make nonnegative profits?

1. Q3. Your firm produces two products, Q₁ and Q₂. An economic consulting firm has estimated your cost function to be .

1. A) Are there economies of scope?

1. B) Are there cost complementarities?

1. C) Your market for Q₁ is not very good, and an overseas firm has offered to buy the division of your company that produces Q₁. What will happen to your marginal cost of producing Q₂ if you sell the division?

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