13 Questions
What does the marginal rate of substitution (MRS) represent?
The rate at which a consumer is willing to trade one good for another
What is a 'corner solution' in utility maximization?
A situation where an individual maximizes utility by consuming only one of the goods
What is the condition for utility maximization at a given point?
The slope of the budget constraint equals the slope of the indifference curve
What does the tangency condition in utility maximization refer to?
Equating the ratios of marginal utility to price for every good consumed
What does the budget constraint represent in utility maximization?
The limit on consumption imposed by an individual's income and the prices of goods
What is the first-order condition for profit maximization?
MRPK = r and MRPL = w
What happens if the supply curve facing the firm for the inputs it hires is not infinitely elastic at prevailing prices?
The firm's hiring decision may have an effect on input prices
In a price-taking behavior in the output market, what is true about the profit-maximizing levels of each input?
P * MPK = r and P * MPL = w
What is the marginal revenue product (MRP) from hiring an extra unit of any input?
MRP = MR * MP
What does individual labor supply (LS) express?
The willingness of individuals to accept paid work
What is the golden rule of profit maximization for a perfectly competitive firm?
Each additional unit of production sold increases total cost more than total revenues (SMC>MR)
What is the condition for profit maximization for a perfectly competitive firm in the short/long run?
SMC = MR
What does the efficiency of perfect competition imply?
Allocative and productive efficiency are achieved
Test your understanding of utility maximization and budget constraint based on the lecture on Microeconomic Theory. Questions cover topics such as income allocation, budget constraints, and affordable consumption combinations.
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