New Uzbekistan University
2024-2025 Fall Semester
ECON 201
Assignment 2
Due date and time: 10th of November till at 11:59 pm
PLEASE, READ THE INSTRUCTIONS BELOW
CAREFULLY!!!
• Try to type your answers for the explanation part in your submitted document. The uploaded
PDF should be clear and include all parameters of the graph.
• Write your Full Name, Group Name, and student ID number correctly naming your document.
Otherwise, your work will not be checked. (For example, FED1_Mubina Vahobova_2397968)
• Any attempts/kinds of cheating/plagiarism result in a 0 mark.
• Word to word same answers count 0
• Wrong file submission results in a 0 mark.
• CHATGPT-based answers count 0 mark.
• Late submission is not allowed. Sending the answer by email is not allowed.
• Do not upload any link to the hero, it will count as zero.
Question 1. You consume only soda and pizza. One day, the price of soda goes up, the price of pizza goes
down, and you are just as happy as you were before the price changes.
a) Illustrate this situation on a graph. (10 points)
b) How does your consumption of the two goods change? How does your response depend on
income and substitution effects? (4 points)
c) Can you afford the bundle of soda and pizza you consumed before the price changes? (4 points)
Question 2. Darius buys only milk and cookies.
a) In year 1, Darius earns $100, milk costs $2 per quart, and cookies cost $4 per dozen. Draw Darius’s
budget constraint. (10 points)
b) Now suppose that all prices increase by 10 percent in year 2 and that Darius’s salary increases by 10
percent as well. Draw Darius’s new budget constraint. How would Darius’s optimal combination of milk
and cookies in year 2 compare to his optimal combination in year 1? (4 points)
Question 3. Consider your decision about how many hours to work.
a) Draw your budget constraint assuming that you pay no taxes on your income. On the same diagram,
draw another budget constraint assuming that you pay a 15 percent income tax. (8 points)
b) Show how the tax might lead you to work more hours, fewer hours, or the same number of hours. Explain.
(4 points)
Question 4. Draw indifference curves that represent the following individuals’ preferences for hamburgers
and soft drinks. Indicate the direction in which the individuals’ satisfaction (or utility) is increasing.
a) Joe has convex preferences and dislikes both hamburgers and soft drinks. (4 points)
b) Bob loves hamburgers and dislikes soft drinks. If he is served a soft drink, he will drink it to
be polite. (4 points)
c) Bill likes hamburgers, but neither likes nor dislikes soft drinks. (4 points)
Question 5. Nimbus, Inc., makes brooms and then sells them door-to-door. Here is the relationship between
the number of workers and Nimbus’s output in a given day:
Workers Output Marginal Total Cost Average Total Marginal
Product Cost Cost
0 0
1 20
2 50
3 90
4 120
5 140
6 150
7 155
a) Fill in the column of marginal products. What pattern do you see? How might you explain it?
Write down the formula and show your calculations. (4 points)
b) A worker costs $100 a day, and the firm has fixed costs of $200. Use this information to fill in the
column for total cost. (4 points)
c) Fill in the column for average total cost. What pattern do you see? (4 points)
d) Now fill in the column for marginal cost. What pattern do you see? (4 points)
e) Compare the column for marginal product and the column for marginal cost. Explain the
relationship. (4 points)
f) Compare the column for average total cost and the column for marginal cost. Explain the
relationship. (4 points)
Question 6. The cost function is TC (q ) = 8q 3 − 4q 2 + 40q + 190 .
a) Write up the function of variable costs TVC(q) and the fixed cost (TFC). (4 points)
b) Show the average total cost function ATC(q), average variable cost function AVC(q), and the
average fixed cost (AFC(q)). (4 points)
c) The text claims, that the slope of TVC is the same as the slope of TC. Calculate the first derivative
of TC(q) and TVC(q), respectively, to show this for the function specified above. (4 points)
d) Use calculus to find the minimum of the AVC(q). (Recall i.e. from the discussion of a maximum in
utility , that a minimum or maximum of a function is found where the first derivative is equal to
dAVC(q)
zero, here, where = 0.) (4 points)
dq
e) Since marginal costs are the same as the slope of TVC, should the MC(q)-function also intersect the
AVC(q) in its minimum? Show this for your solution from part d). (4 points)
