Repaso examen final 79-12-22.

Tema ?e
M Preferences and wtilit
.A.
The consumers rank consummtionbundles n order of preference with a p r e fe r e n c e - Indiference relation

.
.
Bansic asumntions
preferences
-
on
p
l
!. Comnietress I tere indiference
A.I
No holes bundless relation of preferencel
preferences le

oñéä
in for of a
any pair

,
's
,
)
1. Tronsitrvity Ifor three bundless xxd Xl XIX X XISX consistency reevirement

!
If then It a
any
A.2
's
.
'exH
.
!
lI
i s
Reflexiuity e
IXIX Every belonas l a d
bebrsing bradle to at least one indiferace set thot to

,
.A.3
!
Iaal Non satration Ia consumntion bundse will ke prefered of of least contans more
of one sood
J
This imalies thot norference seis howe in we points limes
.
I contrnuity I the granh of on indiference set must ve a continlous surfoce !
.A.S
le the lrdd set must ve line
.
a
.
.
P strit convexity ffor consumntion wondle Its better set is striatly convexl
.A.G
cany grwan
.
l diferentizboilty
.A.7
set
?
strist convexity Iof the
.
A set is conwex lf gry tor porris XiX are in I and IStro convexity honners when I is n the
-KYtI-HIXEX.
Intarior poirt of the set X not in ire frontler
.
.
The williyg fumctiom

A fundron v lutilts
finctrond represents preference relation for all
XEX Ieithe ordering the bundles by the
.X-aB
of consumer Therefore
.
.
Is furmctron Corven the sat we
an ordinal of preferences and owd asisumnptrons always hove a wtilily furnction the rnofference
.
'l
currves bre
.
.
contowis of the functiom whl =
W0.
Ura strion quasr furnetion l the upner condour seis
YXEXifexiefoI are stret conver seis for this to
tapnen the funtion
-concove
.
.
be FIkxl MoKIxJ HFIXITA FIXD This be read hos The valve of the functiom af the of
-Kd
will convex if con wix mean
:
+
.
Xl and x
1
mast be lower thon of
the of te funstrom af poins x
madion the vales the X
'and
.
w the marqirol bie of suostitution
3
Ausolute valve of tre slore of an inoiference curce Maasures the required ryte of
commensation betwer turn spods
.
.
7
Vix
axr
*
=-
Ixrooft MRS U UOX V
Im
IH2
.OXIE
2I-O
da
.-MRS1s
O-dums
+
1
wrorstont

Prefered mathodr The MRS be cokulzted hos the utiiltres

wsims partigl derrustives con ratio of marginol
.
.
 -
propertics of the marsinal
whilling
o
.
increasing
.
Asumatian la satialiomd impies thot the utility is luriwiss the moarginal is
m o rg i n a l

positive wtility

.Ilhbm
)
Il the the
sisn of the
morqial witlity is same for all numarical
representations but not the srze

,
.
Ifid the MRS is Inuariant to
permissivle transformations of the wtiliing fundion lin front of osimntstre ironsformghions

.
Mrs remoins the samel

M the feasible set and the deosion

consuryption
.B
The feasible se the the thi sytisfies

3t
of conswrer is

:
one

pixrt Pata tont

pntn - ENIX IMeonsumar neoner Niw prie of apod il
.IM
The budget constrain
upper boundory of the consumer set Is said is be the cudgot Line or

.
xz
=fpz-Fs?+r
where the slore is the relative prces F fz
Chonses
and Pr
in

and the
m

L
2
effecs the
oIt hos
on

te following properives
:
Burdget Line

.
sbounded from vellow by the mon constronns on xi
-megatruily
m

Closad r The borver belongs io the set

.e:
-

~
.
TJ
- I not stratly conwexl
conwex
non I prowided thot moo
-

~]
X
-amrty
Op

Thus the shorce be interpraled hos moximization problem

corsiroiner
consumer problem a
.
con

r
since the consworers respest our asumtions l we con ssure

thnl
.AI-oI.A.7.
max ulxiitar
...n.
thot u will ve strictly quasi He Urdao lime resrects
Iruntnd
-concase.
The
propertics mentroned buore Terefore The solution will be unique
.
.
L

stĘppixiem
Gruing us ite follouing lagrance functromi

m
-?PHY
Leuftirntalty

from wich wo obbarn the following FBC

compenentory
tx " U
XELO XIEaLX YEprI
-oIs
.=TEIui-
condition
.
slockness
.-TAIIO.
.
I fror
The third slackness contriran the frist two them is be
=112...m
is derrwed from one of
.
to

2
equal at multirlication them be
zern anay point the of both of must alss zero
.
.
Fx-M-E?pixe=o
There fore
at tt must be to If 4. I interor socutrond
.
equol zero at
troorthen
.
.
axi 50
- Interror solutigns
D
.
for the thot the solution will for both
sssumntion conigin consumption qbods

:
xitoo Derived from the third equation in our

2 = -
slackness conditions

o
O
.
ax
1
t
"
U.-XIpr
ty

Vrotho -
douwding by de condilime of good 5.

V thes Y
o
s
-
.
dßs

,-
Xz

interior solution fis

7

2.8

UY -0

Tonsency condition
An imberior solation
.
-MRS+P,
ß for the towrs good
-
Corner solutions cose
n
..
for some goods XHB
.
Thenrite particalor slockness conditions for this aood

yveldi

x - NEMIEQ XIO Xifur

-o
Ur-
-drilo
.
.
X 4.
*x
where J te wtiling of 37 the sptimas roind If the virlig 40 less thon the wtilily of

od
morginal money moraral of iIs
.
4is
the the duesause te te sooul
morey ot optimal moint Then bood will not be bowant moncy gos us more
whlily thist
.
If the alderrative good 75 Mhen
VIg eXtQ Y So our
tangency condition will bei
..
o0.
correr solution we cant Ge to the tangencig mornt where recative are
aqual io
4
riices
:
XFP
VSsP IMRS
.
MRS therefore ite furstest indiference surce will ba the ore thast mokes contoct wwith
.
.
qfps
The Kcorrer of the buoget lie
"
Ie where one
of both Goods Is corB
.
.
.
Xa
7
lz
ls Ii

.
B
xe

7
t
Xß
I The .C
comnarative staticts of consumer behaurour

The marshallion demand fumctrom Bi the

-

Te form depends preferences

.
o
on corsurers

.
-

o
X Par ... Orn Dilormd i

.md=
*-bifpr.
=1.....1
.
Obsective Inwestraale the effeds of changes of exocerors yrrables l comrarative staticslle Money Brices Income On
the
:
.
.
.
coods

)
endocerous warraules Ithe conswoer demad for

- Chanses in money imcomei

o
keening priees rard therefore relative rircesl constant but choncing the budgo line we aet the income consumniion curce frcal

.
.
xz
The Iee is Therefore The unation forned by the ontrmal pornis in front of a chonge
.
.
In money income
.
pX Normal with
gbod consumnian inoeases
ro

:
lö

XmsICE
axit
momrnbl
xí If aDisD msney Income
go

00
the 1 a

.
1 Go

s
=
ó
imferrar

0d.
ami zM

Ek li
la
Lo infarror aoodi corsumption decresses with
lea Mixo maso
pxt
.
ls money income

.
1
M BZEO
s-.3
t
8O.
.
Promositian I inferror Iconflro with asumntion l sbirationd
.C.I
. 311
9000 comot he
.
.A.e:Non
s
for Xsoo
Is normal mormod
0
sor a
m
.
= X
.
iIbB
Income elastraity E Xi Is Imferror good
IX
ti an
:
mü
..Yu=*xmY.
0.
.
E

1 m
Lo chorce rn demord in front poD
mi
of 3 frice smorae
for 9
ood
.
m 8 xi Is z lwzury
Iin
45 25 3
Mr
nY for mels
m+
m
good
.-
am X is 3 necessary
.
.
.
-oo
Elostiorta is messured in rercentual roinis le for a spoincreose in Mirf n Then demand wwill increose by 5
:
+l.
.
o.
tron demorw ircesses by +5
M P0
-IS.
than wyrration obes
melis
.
dimroished
Then demord is
Mo
-2s.
.
- chonaes in
prces
s
.
resulting from optrmal bundles ceterrs
PeCI Brre consumption cureel is the line all the resulling from changing frrcas pariours
.
.
in cansumption for a decresse in price
Relevonts elostraltres regative errimaies on increase
.
-
price goe
in reverse a
o
.
Xz
Iilarbr Errñß Ezrxß aX
2
1*
for
.
Good i Is a siffen sood
" S
.
0.
ly
ap
bp;
I GsD E dresation
.
with
2r2B
is
.
.

riree
.
pac

prociclicas
-
-

åy
Is Crrb ezros
,
.
.
"
-
x
-
Grffen good
poo
-
-
-
-
1
.
"
ö

Priee elostroy err

-
;
pr."%.
"".
i.
ßß
ïï""ï"""
Xi
- Cross martial elzstrcity the demord fron
A
Descrives ite shanse in of Xi In of atorges on B

5.
F Y lr l -

s
ers

45
5+lrmn
-
ans i

OB us
substituie sood

ers E O
Inderendent aood
-B
T
connienentars good
0-o
.
-
the Income and suustitution effects
b
The effed of chonge be decomrosed trrs marls
prpe

:
a con in

ad An increase in the consumers real income is Inecome effectl resulting from the chorae in raas incomed

b
A cronge in
the resatrve prices
-
lourm swostitution effedy
1
s
.
chonae re income klicksaprooch os the real income is constant of the wtilig doesnt change
:
in

.
3l
-

compensating variation levl swill be the voriation in incone recesory to make the consurver has well of hss before the
morey
the
rrrce

chamae le return the consurer to the ioial indiference curce

:
.
.
The swwn substliation effect will always be of the orosida chorse of the price chonse Preferences ore strictly comwex

.
.
Xa

L
Xo -saustilution affed
o
to
for x

I
!
1
X Insome affed
1-
x
1)-s
totsl effect
Ixi price
.".
.
-xada/xI-xII-o
:
:
.
Xß

megative income effecti inferror good examplel

Xr

income effed eO
2 hncore
.
affed subostiiation
IMKB-DMXO
overcomes

effact Denard deceoses with a

.
42 accts toe tos 3 compiimatsrg gBow decesse in prec
.
.
ehiseB o Golffer good
Eeri sb
.
.
So
.
.
Xr
mmmmmmmmmm..
spending all of his monery memme Consiont purchosing defritiogn Advanlase Wo fullay fledse requirement zbout
rower
:
.
.
corsamers indiference
map
.
Xa

In this cose Eyiwen osswmntion 1. I strot conwexityl the suustrlution effed will slwuzys derive on 3 inceose
n
A.6
.
.:.".."
In consummtion or the good who prie
hhos faller
's
.
f

The chosen bundle in the Slutsky Budset Lire cont be io the left of the Initig wunde Mose are rari of
.
)
The interror burae where
EiPrx and those hove been bready rejected fue world wiolale
ossumpiion
.5N.
i..
ßst

Xr
-
In front of proportionde chrynges in al ard N
B
equal prices

2
.
Gm Kpi fymar lsi

.
.
Nerther the slope nor the iniercents of the budge Line hove been chonged therefore ihe optimal burdle hosnt chanced

.
.
Prop I Auserce of monefory llusion
.C.2-.s.
.
Behrawrour will not he allered Mn fromt of inooive or
price levels 35 borg hos relaine
prices
ard nurstosims rswer is corstant

.
.
Bef I I honseneows furmction
-
.
.C.
lra

-gtlibilrnn!
flxir X 1 homogeneous of degree r for 4 lf
3o.n.Thnd
.
smy

s0
s
72.
flkxir kxnd = Xrd
lyt
ffxir
-..o.
.
. .
n.
ler and homoge reows funtron of aroder Is that wrah his inderror structure is rot offeded by asimpiotic transformatrons Instead tis resuilt B
equal

.
to bt fraud
.
the marshallian demond furdion is tromogereous of dearee D The results bre rot affected by these dromsformytions

.re.
.
Prop I 3. Adding wn prosperty
.2.
.
ee Eêparlnimlem
,poxi*e
This proparty stotes thot the demarded conlodd
the to un

"
adding un of
pirce and qvgrtily Qf apods awill be aqu mrle we the Indiwrdiuss

.
3l
sbows demore and this wwill soiisfy the budaet restriction
.
.
M the expenditure fundiom
.D:
.
hisis
Methods brw r
aprooks esulis matenatical dermalion of commarstive
.
corents of drasty theor on wwish skows for a

Berred from the problem of

minimizing the total experditure necessiing for the conswer to achiave 3 aiven level of wtilin
.
positive The hos
first constrarn will be solved
equalriag becouse f lower exranditvre wiithowt

Şni
If all
pries ore
aum
WIXIOX whe can
.
mn
.
.
.
wiolgtinay tre corsirarn
.tn
.
s uiyr
.1
....TnlIu
XIID I
=1...M
from wich we
set the fallwing lagianarom
:
LiŞim Mixtnfw
-wlkir--oI
by the
wsing some
+
with the foc beerns - melhow wulth PreMEor -

I MEYS

-7 PR
=MRSji
B
.
used us
s
MFU
D
ire whlliag msximization

2 = FuroD
Pr-
proklem are get
tox.
VouIX TEnd
2 =
=o
.E....
fn
Therefore we se ite some reselt hos in the willity maxinization anprooch
,
5
z
where the optimal XIte ty .. Boarwltfer itn
/pir.
/dowd
...nß
Lo blicksion furmctiond
demord functrom Xi lalso colled compensaied demard
.
Uus renlacing the ontimal walve of X the budset lie we aot
.
on

\
i
êpiuspiudMIrIud expenditure funstian
-s
m
>
Lo odding iproperta
me

- using the wn
" "
"
-
. The
expenditure furtiom Therefore shows us the lowrest rosible level of required mBney income siven a level of pries Pr ord a reauired

.
.
.
wtrring level

.
The demordlabyilapirtomr

.hl
slope of the hicsian will be the substitutron effed of the frice storse

Ppy Besouserby definition fixed the

3
in slopet W is in

.
hlidesion demandi amourt of Xir dependirg
tiolesion demord 21 Morres a
froa

.
willins
D
0
p and targe level
on
pries a

"
.
heerins

.
chance

Ppm
U Doustontr ord the rfore
Sbre 5

ß Is the defirition of tre subsiviation

expediture fundroni hidsion demord

"
W
effedt of sedipn I
multirked Goives te

.E
-1
Gy us asso
suustiution pr

.
effed amoun of minimized incore
morey
.
.
f
y
t
Ir
for te aiven cbicitg ard
vrice levels

.
i
aH
sustilutron effed
nI .
-
Bi
.

Pä -
-
-

" -
-
- 1
-
i
P ÜIs HIBr
.WS
suustiviion Xafex
5.
.
!-1 wred
.
xk yir
X

properties of the expenditure fundion

ar homogeneus of decree l in prices

Becowse There no
change ir relotive prices supirkpannd The onirmal wunde remarns
's
cß

MoxP The lm riis

-mIp?.wI
pous X same The level op
m on the othar hord becomes more
0-3
-o
.
.
.
fypPu XP KPPxP for 140 expersive
B
=kmIpral-s
-0
3
b striatly increasing fror
ir miniolls ir oif er to reah er e
0
in u an increose in
going to inoesse we need krqver a
-s
curve with ite some recalve
prices le needs to get brager
-om
.
.
C
Non in the price vector
-decreasing
troofi

M t Pix - where xe Hrcpowl lo

+
....
Prtnt
-Bixiton.
-frmarn
prt MrH 1-
atni
The derivatrre the agreaation
p :
is of
Lß
ntXi
H
.
..n.tYE+
apit

s
..pn
aM
AX
=
55
XH+Ş.?
io 1
p Py
gnor
rh
.
Ist of the demorstration Here we ao the resultes
M 25
.+X.F,
mort
2455
.
Us
m.
p
-

from MlU
ß
the foo substituting
=
XF+MS
-
Mro ani
s
.
-g
.
.
*

Becouse Wtillin .

is held corstont In froot of pi chorgesing

2 +05
U t
axt
1
0+ Ž an
- TXELD
...o,
n
.
any
p.
Ls us aap
.2p.
-Ptf
551
.
rememver wls on exogenous vorraue with the Midusiom

24
no
Im
Therefore Nondecressins
!
demonstration here sd thot
demord second of wre
an
-XEIBI
the
.=O.
port
..
.
,
lniurtiomi lf tte expenditure function wwill increose kording io the chorse consumntion of so
riscomve reastive
vr nerease of
0d
-
o
It wish be strrathon inceysing in 35 lessi Bne price
.
Lemma l A .3 Sherards Lema

..
.
aminius
XheMirB

.uS
zß

good

."
" partial derrative of the exrenditure fundion with resred to the 1
prise
is the hicksion demond for the 1

th
th
the
- Shepords lemrng concusionsi
s
To a first
aproximstrom To morntair W The expendriure must increase buy XEMr

.
.
.
iwny
on = Hilprol
o
a In fron of a
shorse in
rrre
the expendiure fundion will change in the same angort his
?
X.E-
.
Tte tiaksian demord didiztes

.
Im XMPi Pron 1 tomonerews of dearee 1
i
.
in
=
prices
s
.
Lo The wetween the
Gan in eamenalture pidial the franal ihe
frices snd
rices Heapins

.
burmdle comstart
.
dothe expendiure functior i concove in
prices

Proofi

g the derivative of the

an expenditure fundion lher

akerorol secord order the
larran
'mdroula
- -
o
anf frist arder deriuative of the hidsion demordl determines the
zp
.
.
sram of the substitution effed price choncre
of
fa

.
I
from front
..
ree howr of Increose for
xí
we son se in a
frice xr

.
The new
moneey income lewal is lower thon the Bre dericed from

she pords lemmrz Therefore The relatron wetwween tte voriatiom of 3

nd
m
prres
.
.
Is rot lineor hos suggested by Sterads Lemma
.
.
prxlemi
àamileus
ap oX
.
O us APis

ti zri

aralpiw
,
mrniwi
fyrnrüde Jß proposition li b Neastive own substiiution effect
.l-o
mut

i
.
micprud
the
-

- bpuiirod if indiference carroes gre strictly conwexi

-
-

-
- -
-
-
-

- - -

"
ahildrwis Lo IsT
why -
Graph If U is not
convex then mpprix
"
does
s
TD rot
?
.
.
.
z pi

:.
neea iry ve inferror to mipllixld therefore Grapth 2.
-o
in
.
wont ve vellow the lreor erreseristion and trarefore

am lernd
does not need tos be wO
.
apı

Pi
Topk 2: Consumer theory ll
.
2. The dvallig theory 3 the sluisky equation

nd
A.
-
Indiredt wtiliig fundtion
o
Derred x

-Difrim
from the Initial consumer probzem Imaxw st Budne constraind wich
wrelds the demord fumstions

.
for a maxiniced walve of WIXI WIXY WIXY will be Then a function of
nirmh -
whlxtmind

s
.
.
ulaiieimi

...Aniaimdd
Wix thde
....
WX
/PIMY
Inaired functron
-
-
utillis
a
.
Iis colled an indred utillty function beczuse willlig now derends indrectly on Mard n throwah the optinization proscess

.
-
.
Urrimd con be used to stody he effet BA ctanaes in morey income ord prices

.
no
Properties of the fundion

homgerevs of dearee B Becorse Blmnd aso homoneress of dearee Ol

's
.I
WI is derrued from a mazimization problem where

.
Ressoring
Stroctly
M s The Merefore Te derislive
-

inereasins Y constrarn M

:
income is
in
morey
as
ns

.
.
=
0
th
.
will be X And from the FoC of tre

4.
briaind
problem we kroww That
xt

4
le n the moaind wiililg of moray

.
-

Non incessing in prices

api
aVF
TEO Istrist iequalin IfXIool
--YHHt=-
aM

"+4il
ancuns
Lo Roy indentiiy An increose in
Pr 19 a reduction in the nuischasins rower By Steporos Lemmaf
.
.
's
an

m will be reduced by Xt Xtrs the morainol utility of noney income Fhen

n m the charn
ruler
.
"
.nillike
.
Therefore
autrani
xite bilpims
.
avtam

therotir of the indrred wtllig of ut with resred is the ith prre ard the portral derrative of

ut with resreds io nes the Morshollion demond fondiom for the 4 good
morey incone us
th
.
ao
Dualily theory
.
li
o
siven solution port for a
given price wactor can be wrewed envivalently 35 esulting from mininzins

expenditure subjed io te siven uticily level or maximizins wNlitag swbjed to the siven expencilre lever
le the indiredt utillls fundion ard the expediture fundion duss io exnother
.
are
.
ulpiminamiriws
 E prx
max wexitad Min

.
S

.T
sTE Prkrm WIXle W us fixed valve

kz
*

z
mise
MRs Vz

-Pz-s
?
Bz
mien
mt

-Pz
hare we move be 32

Ins lis fursios forrd Iill

wre fird the furstest

-
inolferece - --

üâ
-

*"
- -
-

-
-

curve
-

dvalły
W

iPilpz
X mort xß
Pß
-3
Mbishallion demora fundion

hicksian demord fumdrons I comnansaled demondl

I
traprnmy
ta .

.
mo-&B
* fli tandarprwl
ie
Indired willidy furndiom

/brud.
-3

w v Balpimi
Exraditure fundion
*wexfixela
/bilpimd.
velrimi
in toprk paxa Mobeifpowd +
paflathrwl

-
.t
miprvi

lemtitiesi

i
minivernimiom te resurlis from both afro
actes 3
re
sis

equiralent b exmotter
utlrimlpiwklewt
.
Ns
biceimo
milrewed We on exully ne bood
-hlmeseipims-
tres
form
or demondr

alrmd
-Alramd.wl-blAoNAy
anrotter

as
sluistey equation

abiloimdd amilnival abrenomd

Asrrrmd
a
-

aps ans am insolrmrn

Proof
.
from Mifniweda Bilriminiartl diferentating with respedt Ins Ns
.
.
Minove aalInimepivEll aAiAomIANEN amIAovE
to cror rule
.
,
.
aßs Zßs Bit ans

Arlyirs shepords lemnz

.
77 " lrporkr Steraos lemma
TE
ons
po
abilpined aa abilpimiriwed m
d i l m i m n i ve d

Mfrrartj
,
Jßs aßs
am

Becouse MemIrinty l danisly 11 3

and .
Mslrud Ajlriminutld Yendily u reordering lerns
-
.
-ajpprmd
aousaimk amiionwal

l
adiepimi
Itte
)
aslA 23 JB
.MI
sloisfy equatron JM
-
from
.

wnus coes reoroerns

a
zß
+
s+
aßz
3
zM
5
1
of
reta
reuoeibs
 And takins i

-5
aH suostitution effest Ichanse in of a C
is demmord in front pree
chonger Meeping uiiily consiot Tr

.
!)
ap

.
.
-
27 Prlnimd = income effest
am

- fundametal theorem of corsumers Trebry Ihald

o
normol soods 27 s
from mosposition l INesziive own effecl

0
.b.i
am

-subsliluiign
amicrius
conwex

?
to fif te indifference curves bre striatly
zzypi

And proposidion 2. Slubky equatrond

A.IIthe
abiborm
p ahrlowt
asperm
.
ari zm
.
lf Go lis demord tos regative
00
normol then
-
Is
a swroe a
slope
o
.
adicmimi
X o

ini

symmetric
effec cross substilution t
-
from boung teoremr wrom slotes trat if a furdion hos conirnious secord order
's
amilrind amsinul ithe dewroaties
portrgs demustives he cross ore
equol
lisalrmnnd

.
a
-roidial
aßt Ißi

. Deflrition Z ITwo Go I ord 5 ore colled Hrcksiom or net comnienais if abfilanstD and
.a.lo
0ds
hicksian not suostitutes lf
zHif sB
or
ars

2. Measuring Te benefits of changes

frie
B
-
chonses whility cannot we io the verefils lwis functiond but
s
in used reasure of price crynges am prdinol we con meosure

The consuner owns

monebyry evaluation anw then zareaute It This is suporied by the ssummirom thot ore evrrs of verefit toy on
.
.
.
indiuidegs com offse 1 of loss of onother lei ldentiaal walwatron of veiwee Hdiurdvals
monely
E
.
.
 i
* y
us
for 3 deceose in P

.
*
the Equiwslent warration is te necessory chorae
Ai inidis eqeriliurrum

)
try g to the

0
In M the consurner final leval

ì
B fro equllibrium

.
ctiily ofter but with
of a prica change
î

,
cilnitios abisity lavel wih
firg
Imidial prrcas

.
trres

fimal uhilly level ourth initron posphogelremieulpimd

Bl

ï
rirces ut lim pasPil

/roimtenlewalpimd
revese for
A

:
the compensatins uyrralion is the recessory ahbrae
hraxtfprwd s
hi wil

;":
qß

-fß.
In M Ib net te consurer lo the imital level

di

=alrim?
of ubfity rot po prrsesd but 20 fingl prises
EV ( to hill
.
mppin Xroo

from
Paspiru

*fpemsewaleims
mont ES Ifrom tripto DId
ß
PB-
-
-

-
-

x
ffrom xurismos
-

- -

":
awcs
uefpemd PoxP

.
! ?
revese for

-uelbim-culln
Both CV 31 d
EV con be defined by tre expediture fundion

.
: mlaiveltso
(

cu
:
-mepeuet
."hilneveron.
*

evemepaud

-midirull-f"hlarviion
ritì

The consurmer surnlus

ldez The re wereflt of the consumer conswier surnlus is aquol io the arez under te marshallion demord curie
.
or
,
.
's
un
bo the quarbily beerrs consured minus the exronditure on the good
.
.
Throwgh Rou rdentily aot fhat
n =- Iwrere a is the morsinol utilily of recomel
's
,me
tx--xburrimd.
.
Then ilearste
To auE xfopoinimion
.?"
we con wish brelds -
:
.
orrdore

them lf 4 we treated constont when hove thot

.
os
con z
po changes we
.
qfutrnimi a csefBplarmidn
-velpemdd=bdaimion
.
inmer

measure of the shoree

money

In WHIG X WENE
.
.
Merefore te diference in whililes

diurced
u B asoin UNE
4X
Allowaht It not the ususs to tore a whily fundtrom where X Is constont in front of
frise ahorges LS hos clear advantyues over
.
's
EW ard EW morrly tha is derived from ouservalle deword caurues
not unouservable tilrelision demords Irrwd Thes corsumer surnlos
.
.
.
Can be used hos 3
arroah is measure ie werefits of frise
shances
m
.
BÜCVEESEEV for normal soods and a decresse in Pi B EVE CSECW - for a fall In
-s
o
.
for inferror
Ewlales for abous
IWI for
:
am meresse in Pr and Goous in
P
/aul-s
normoal a rise
=IESIsIEWI-s
.
 . am

'orrnpl
from the Sluistey equation a -

..20
} Ij by
conston
moneq consion wtilily pisne
effeõ
income damond demond curverle

.
be morshalran
slabstlen derwond

.
demondu xitrimo
ärfBrrüs
Plots the whole
lsugstivèiam
prrce chorse effodi

abilpimd
affpi lurp
since effect ard the effect the to the
Is the own substiioton is whole frre corve will
only

.
.
aßr

the
same be sord for EV Sor since LS
S ord

.
con
wnhen ire effed is minimal

.."brotir
.
sizna incone
.

.
zwel Milprwerami These the effect is winIma te vorration
..
rrcone
wwill only be close wwhen and in
froceis
.
smyll
.
So CS will be close to CHEV when chorce little sd Incore effed s D
prices

.
2. Revealed preference and rorces
price
C.
Consurer theory hos strons inierast
a subjedive Gosis marnky the focus on the preferences of te individodls from thee thee in a thebry based onky
,
's
.
on observalle and measurale evidence ns
consumers wepzurour
.
rfirstn
befawiouralc The corsumer
osumptiono m srends alle
.
:
second asumntion Inky ore burdle is chosen
situstio for exm price ard lrcone
:
.
third assumption There exist only ard Bnby price ard combinigtion af wish esch bunde is crosers
-

one income
:
l
fourth asumntrom consuiers shrokes are consistent If bundle to Is croses od difereiixil could have been chosen when X is
:
1
a
-

a
.
.
chosen Xo Is wrawle altermative
no
lorger a
.
RPxt
nox pixlepiye 2.6.1- axrom of rewesled prefererce
.
oweak
,
0I
yous 2 p My This thot both bundes owaiable X chosen Xo
f
wwhen crosen at po Ms and would lf bre and
0
rean rs
.
.
.
?.
.
Is revealed prefered lo yt
.
the bosed predictions sntredemand furtiom delived from ths behawroud ossunptrons
All of
utility com ve

for the cose of the slan of the suistitution effed we obiarnad in IB thist ll must be reastiver le bemand Ind correlate inversely
prices
-s
.
Xa

suustidution effee with betsurourol

asumptions B
position of 72-0 slutsky definition
.
.
srew
!
72 must be in 3 because of osumniian Ilall rcome is
z
It coN ve Xo becouse Bf asumption afome vurole far cxch price and oudsetl
pxî It cort be to the left of xo lasumplion I It bys been alreay rejedted beforel
.
8

x
0
oX
2
2
-3
Treefore X must le bo the right of X XPXX Merefore
2
7-0
Hrx0
.
ßl
0.
aß
7
3
z
Ji
aoprice indices

To the benefils to of changes in goods for exammler to 30 monoy lo keen

ju3t
measure consumers prices If murchasing
incone rower

.
corstgnt for rensioners

.
Initrgl sitvation tte
reriod poxeeMs In whot is corswrer beiter off
-s
?
curret vevoirs pixe M
.
l
I MIa chosen
's
If
1X0-s
PIXI 71 i s revealed rrefered when x 13 swarsooled

losregres

0
PIxP
PI
Druiding by poyes I
poyo
Poxs
Lo o
PII
price
J Prre index -
Losreyres verstied

o
lndex of comsumes morey
soyo
frice Index index

.
incomreo
MI
Mo
clpi
if the Index is greater thant the fice index the the corsumer is better
morey
.
income

l
If
poxo poyls yo rewealed prafered to xl This equiwalent toi
passhe
is is
?
.
^ plxlxblxi
Epox "

poxo
-
-

pox
Possate Price indexlpp price
1
poyo
213
.
J index
Same hos
momey indez
.
L peyres
lppl
Im
3s
If the Irdex is less or equal io the Pp then the corsumer is worse off
money incore

the lo the initial ravawl

in current rerowr comored
.
These indices ore colculated ussing the totol or oveoze woights of certorn Growns
.
MI
5PayS PPESt
.SSMSSMT
.
'
ES
LP = Es X
P.
53
s numver of consurvers
5
BPZsxsD

plEsX M
.ŞxS
If we osume that MIOLP and remove the deromipator is ord
simnlify for the tus
5'0
consumer cosei

nixalt pixols pixapt R this doesn

imply thot 311 of He consures mist be letter offr just fhot ore
1x60-o
of the m of least embusts
.
MIOLe impies thot some of the consurers ze beter off NBS all of then rove to ve for low dispersion and
.
.
usirq an aace nekphir he cor That moprily of the car ve letter off
soy o
.
Z Exrecte theord
.B:
dfility

.
We hove ore
aod be has Ircome
messured in writs Wroh cor sea

.
.
.
4 Slu amount of Incone if siyle s occurs
3
s/seli2.....
Y
=lyr.
15 of lawtcomes

?
.-.-
I
as vector stage
incores

-contingerns
with state
probabiliy of far esch of the mafld Gat The followirss priosied riska slteranlue

:
a
12 s ae can pr

.
s
pelraied = 2

45!
gi41...
Iraira..
Ls
provyborlity distribution of z gamble or of Ircones

.
hos urderstood represertation with outomes 4 le af eah stæe ploued the vector

s/5+l2...5I
Tis is Just the of a camble rossible ircores in

.
.
-the
4=14... 451 fuich the ourcone of the of a slager 3 1 the prowobisly with exch possioze

rd
is ircomes 2 ircone

3cts
n
.
s
Bovated

Exampiei insurance decesioni

Indiwidual wilh of IDQDBB evros with 20.000 of 251. te

on income z probabilily of bosis his earos osr 20
.
onilom of
buging in to on inswore fully covered for SODDE

PAIRA RR YA 42 BI BIAS SA IOO OOBS

S.
2S.
.
.ODO.
.
.
.
.
PB YPS
RB
-1195.000s
.
.
Men we con ue be expeded outcone of the gamble A

TAŞRAJA 95.300
=
o pArPB IBoM prosreds are similior there fore the corsumer willbe iroferect
,
EB T
.
irdiferere
!
front
-
It of risk
3-95.000
- fair mospeds expected wtility hymoitesis
s
A forr gouble hos on exreded colve of zero forr combles are uswally aot desiorable for the severbl
.
ropulatiom
.
An
explaration corld we thz reple
dont look 37 the exrected owkone of z comber rather then
roy
stention to the villity of the possible outcones
.
Leis say itst we wort to compare thase ths prosreds
.
PA y I PB Rå YB YåS
-IRB.
?D
-IRĄ.R2.Y.
.
.
PAePB
only of The exrected cithlg is greather in pA
PAIP VA UB - Sop
-IR
lf ard V
?
only If
-IRAUIYAII
P
.TYSY
Wrere vryd is the Bernowlli utiity fundiom
.
In our
previous example rand ssumings vryl
-hny
INIBO TS
7I
UA R DR INSB DIZS
.DOB=IT.
.OOO+
=RAURHAH+
2WIY.AI-S
2S
U IL 16 UAE UB The the
IG-3
InB O rrdlluidual roys irsaronce
3-
+
t h e r fo r e
.
.s
.
.
5.
00
aAtHtode Towards riH

.
Ur assumnion of differentibilal of tre second ordery
4l-o
viryt msrceinal ctilly of
morey income

.
-s
Uirai rate of ctyrce of the maraimol utillts of income
as
money

.
for a
prissreci

Po feryirual wrere R is
Py ond t is Puz Te exreded calve i

5:
2
.
.
.
12-
r2S
Elyd = ijeRyt 42

And the cerlainty equiwalent of the gomble or bottery is the ircome 4 wich satisfres thot

.
c
wrucdewewerueglitleriwigad wih W weenns The exreced wiily of prospect P
.
.
The certainiy equiwalent beems the smound of fixed incone wish would be regorded 2 jusI 35 4000 hos ploying the lottery

s
.
RisK
-
newbrality
:
o
- In this coser the wtillly sblarred b te
certainty equislert is te sare hos ihe one bltarred throuahtle comble
B
.
4
vracd
=vliji
Thws the verr adililg fundrsn for this indiciaial lineat The be entirely bosed on expeded
oull is preference sering con
.
outcomes alore
.
- Risk sversiom
B
.
luli
!
yos vragala
5
le te exreded utily of the aamble Is areaie thon the
prosieds the

uprartia
.
-releals
ruraritia
-aiulgade
exreats Terefore corioirty equivglert
decsion the valve of the
-faker
.
Is lower than the exrected wolve of imcones .
The walve of ihe prosreds is
overstoted le the valve of costain inore is
:
the the
greater thon vale of gymble
 Tonic 3: The theory of a comretitive marker O

21ol123
3 The production furstrom
A.
DA firm Is on orgarization that converds imnats llawormaterials ond canital in to outrutf so and services

!.
0us
the thot wont
Mey the prinaternwolre non sectyr foius
Well fricate for profort firms

-prsfit
-
con Brerale in or on
asuming owners
s
.
.
ib moxinnice profitirationalila assumrtiond subset lo a tecnolosical canstroin

.
There trree marn tire of outruis
:
's
- Canitol services lledi Lons lived imnuts like land buildings ond equimmets
.
.
.
s
-3 Lobor services hours of wusrile prowided way morzgers hissh and low skilled workers
:
.
.
Myterrols raw so and noturol resources or
processed produds consomed the production
.
-3
wich in

,
ore
3ds
,
The to
technolosey is tow this imnuts are coroired se the outowt Br
0
Is perreserved by the production fumation

..
.
9+
fll.kd
showns the Ibet 3.

A.Il
-
maxrmwn amount for alternative
of
output combinations capityl and lavor
B
of

.
Ihar arbull its less imput for techroloqy lBef 3.
weddoe
prossiule to provnce witk of
not least

A.21
a siven will be efficant of of one
q a gien

production afficency
.
Time 3 the vorrabilig of imputs
no
-
s
In he short run af least one of the imputs camnot be worred proctically Aus we con diferencade between fixed ard warrable imputs
,
.
.
In the long runr all fanpuds are varrable
.
-
the morginal product
o
.
IBef 3.

A.3I
Te outhut resulding
additiona from on
unitary inceose of an Input while holding the rest constont
.
l
M car be reaptie concectan prolleand but this b or Efrcet I arurstrng The mort will pence wtroty

afRtf
0
More
.
lf focus 5 KrL MPIO
u5T
sive on effrciat convinations of
1
.
.
Mee thot
Of
olso

al leraiminishing
ie osume
=22 TO
ord the sone for lobor marainal produdt
.
:
.
f
zlp
2
Chorses in MB derend olso in changes in other larputs If
.
.
aAI 5
slak = labor the
'
in offster the diwiristing of
Men
produdruity
incressen capidal con produdiurty averase of lobor
ak
t h e r e fo r e
,
.
FIEsO.
227

x
is often wrewed hos the swerase pisdwaticilg
.
MeLiL
-fleioi
aaf
-fi}feeleime-aer
as

artrat
Ge
L
AP
2
Auease produd of
L lerl
:
,-
-s
auSlterld
9
q

ö
GeL

Mãp
frivleln
,
port lar
morsinal rrodvet

Turns from
î

":
increasing
Io
demezrising
, 40 LA
.
in poirt lor morainol

Af
prosdudt ard
oreose rroduct
Is equ
3s.
mß

Im all the
graph morarot
L

trodud is
positive f
lß f
.
 The production fundion can be represented through on Isoqwant

An f thot
"

Isoquont shows tose combiratrons of k and can produce z qrvan leval of outhutr 9
3.

A.I
Det

o.
fffarld =
90

While quite simibar to utility fumation The isoquants cardingl finctroni leves
quartities Indiferance dessian
on are a of outhul are measurable curves gre
by

.
.
Broinol itecy display qualitative information
.
.
properties
un

of isoquants
.
for The
positue marginal produdis Boquarts wwilll

.
.
The further from ite point of origin Te araziter the
owtpvs
.
* drs not cross
Trey
I downawords
shore

* be thin INos breal

Imust
on

- The MRSIMorgino
substitutiond
rate of technical
o
MRts mezsures trow
mory writs of cznital the firm can
replace
with an extry wnit of lawor
Def 3.

.
A.5
MRIS e

-1 Iaigo
lens the MRis the the Isoquart
is shore of
.
Arferentiatins the produdion functronswe set o
MPdIMP EdK SNIt
equal to Dldqudl
.
D MORdK ad ten eorderns mo

N la MI
=40+
-
=-MP,OI+
.
MPK

Wiah implies that

MBT a
5
.-MI
mßk

Assumntom The MRB is deceasines this implies thist the more lawss the firm hos the horder ItIs to suustitube ore whit of capigs with it
:
as
.
.
produds
!
the The he
lderiwed from deceasing margiol And thos MRST Is z conwex function
.
prosduction funation

wwilltherefore be quasiconoax
K
.
~ the elosticity of suostitution
o
convex
Iogwonts It the kif io
meosures proportiongte charce in relative

The proportionste charse in MRTS zlBra on

Ismquant
kA
3
.
şü

üïïi
O
-bllerss
terd dllelld mrts
qü E
3gf---""
2o
dMrSts IMETS HI
-

nußts

- Returns to scole
o
.
q
for an inoesse of the imnuts equal to Ther the wwtere tis 2

rosilie consfort determine trst

awasi concove
oroduetion we can

i:
:
-
.
fundtion
-

--
-

- o inceasins
i
- - - -

TEIlied consiont
FIMITHd returns
- are
If
.
l
.
û
decreasines
.
ilo
returrs io
i
corstant scdle
monly that fililed is homsserevs of

dearee Not
t implies Mat produds tongaeneous
i
morsinol ore of
.
f
I degre Dr ond Thus
MRTS Thomothatre functrond
=E.
la hat Lo L

Any ster cose where stuilel is tomoseews of daarea rob informs

as dowt the dearee of relurns io

scae frel decrazsing lmeressing
!
rol
.
36. Shoot rum and Lons run cosis

.
-

sistinatio hormortonity costl

B
betureen accountingl expiar aost aund ecornwel
imnlart cosi

..
The roymet required to keen Its the
economic cost of on Impurt Is the that imnut in
present emplsyment Therefore we can 31 504 that

s0
.
.
employment rpef 3.

B1S
the Th the impert is best alterrative

3t
ecoromic cost is remuneration would reserve in

.
for labor Thrs strarshsforward Lovor z hourly It

7
i
quile ore
payo on wose rate wk ard Its assured that whist tre
.
3
-hours
.
's
.
Imrut would receive of his best olternative us

.
machine

-hourl
for capitalr we use the impliet cost wim is the ental rate of the machire of his best aterrative use Icost af bra

.
.
wict is deroted by V
.
therefore i profiis from the acounting becouse incorrorote he deffiridion therefore time srew
differ
defin tionr
we
ormorturily cost in and

waskines on
the firm for the surner 1 reaorded hos on imput with or ossociated impiat cost
s
.
C VK
=wl+
"
short Run costs
imnuts that
.
short ron varrokle cost zre
hhose osocated with con be warred to

Because leis fixed in the stont run s

:
chorse the outhat rues
.
SCEVGTFE short fixed cost camot be carred and ore
assocrated wuth lapals that

.
run
-wHVly
carrol ve chansedl fol

short run morainal costismel will be therefore The amount by wich z firms cost will increose of It rrsovces
.
.
ore more woit af outrut
.
The stope of the

SMC
dsøg = 6
dVG = mp
ost
+
moranal aure Smee
-g-wIg
-

will we
g
,
short run cost Los

MP
average SM S WE SME
2w
-MP
,
SAC
SE VQ FQ from here MPL deceosins The
the cost of labor
-
If
+
moraind
+
Bs
=AVC+AFC
.
.
Is Iraveysing I correlated
!
Inwersly
.
VE
SMC AWC
share of the av cost
.
DAVC
-
SMCĞSAC
curce
-W-w.Q-sYE
Lo Inversly corresoted
f AP Is

*
00

P
,
5M
s sc
with svasae costralsol
SAC
xp,
-
3

ANC

At the marsingl cost turns from

I
'.
SAl
deceasing to inceasies Terefore
.
.
AVC
The 1 starts turns from
o54
warrable

decessirs io merezsines
.
A
aA Mosimal cost ist
equal to Auaxe
.
vorrolle cost

Al 9 maraial cost is equal to

o.
vorryble cost
.
gí
 Gong rum
costs
.
Proflt maximization impiies the minimization of cost hrow can we oblain the lorg rom cost furnction

.
,
a
for z siven outputi focu
w

,50-s
-df.
minGowItuk -
fo thlq frirkll s

-
-whtwk
s
lik
of =
V

-TFk
ak
stq
=8llikl
f
- 9-

fllikl=o
ax

And diaiding the first tus condidions

:
the ratio of the of the Imnut with the MRTS
The equate pres
YEFK MI cost minmizing firm will

.
MRTSKL
=

MOK
+
-
alsoi

MOR te lors
W XsK MO
MO t3 ron morshool lost of outout
+X
-MCs
,-FR+
=I
,
ASMCS

l mP
.I
Where fy and flx are Mo 00

resrecterly

W firm exporsion poth

-MRTSK1-3
's
iomperis
!
ao Coninger Bemord for imnuls I Bemord for
.
I KI
*-KruwiqI
=kalurwiqd
- for normol imnwis demynd inceoses wwilh outnust
A
.
-
the Notd cost functron
B
E UKTWKIUIK +
UECIVIWGS
.GI
-WIT+
CIUIW cial f
prices of Imputs oo technology is constant
.qI-s
.
provertres

Homoseneus of dearee ore in prices Averse and marainol cost

strictly iereasinss in outrut funörions

-

ma
D
Crqd
Non decreasing in Ipub prices istepodlemnal Ac
-
-
's
q
concare Input
-q
in
prices
-

ke
Exammle of decreasins oversae

bf feneiuf econg
CosIs cecreaan
!
.
Ae
AC O CRaI
ACIZIod wil sustant incresire
ZCIad
=C.-
E

220 290
mnoraosing buctart

i
rei Doubling be cost and the produdion
for thot there
z decreasing Aur we
soey
eapromres
s
'
yoalds the same AC tos in EO
.
Ba scale
But the true solubion hes of Er
2
for Inceasing Ac Mere deseconomies of scoll
ko
om
The cost of dowbiing
's
90 13 inferme
s
to ZC
/qdl
iteeforei aclzeolx azhadI
qis
2ęo
8
!
ZaIgod -
Crqil
S
-
Immut substilution
b
Effed of varralion in rrices on the contingent demand

.
"
Stepords Lemma
this result dererds an i

aciuiwiqi
klurwrql
acrurwqI akfurwgl sß no
the siret concywify of the cost fanction

-s
=

= 0 In
J WV
zwZ
iomypart frice

.
zuw
ho the ioiol
varration in costs Ls [

derivzine

."0
of

r
then the secord order
in
frond of a price shorce
clurwiaI to
p
win ve equol -

In w is to the
equal
The hin front of

4wexs
varroiion in

corialion in tte contirsent tarmrthe slore

rs Deceasins MRIs lor in other of
wr
affu
a crarse in or
demord of f The Boquar must Ge seltins biggarl
k

mnsomis wast

'
io
Iü
s
voriable durns scole
Because

is

If ane inceasing w
.
kean

io moc well use less oF 9. ard subseauent

If
deceasing redurrrs soble ae ioreasing
AC Is
L
invesses nake d less
.
on a will
,
Subsequents

if
z

-0
less
rice
imnotmiz
-3

relevan In ite
Cs If

.
decressirs
1
Ac
ahoorses for
AC Is 1

Wich aIts effed e cose

.
to
less affer r b olss miykes n
-MC
Br

on cost If Mhe BSqVJN

aronver recressingst less

h relevanty
is only tryppers
soilf Acomer ond fllindis

-o
.

wo ryve eesromies of scbler ..

.
.
substilibe ly o 8 deceosins

b
besouse are
1 a

.d
homosserers of decree r or rale ard iterefgre a
price atorase in I wrll

.
less ite next time
3

F-fa0
le deceasirg
maraial cost con or ircessing
.
- Effects of chonges in Imput frices on overae and myrainol costs
o
.
A cronce in imput riices will incesse the sasae cost l Becouse Tob cost 13 inceasing in prres for the

!.
)
moarnal cost cose answer Is less starshtforward
:
,the
MC a
+OCIWINIGd
=
2cIunviqu
-
o
ay on aw

ord trown sherards Lemma

:
the with to
maairal cost resped
will be psilive if the demord
athe =
w
akrurwiqh
s

aw
tos a josiie correlation with sutput
.
3
y
wich will we
posilive of and only if the imnut is normolure demad moreoses wilh butnut for inferror
:
.
Goods the confingent demord folls in fromof on
Indeose in
outpst
.
oNsmortimally of short costs
-rum
.
Becouse in the stort ron
cariiol is fixed this mears that weill need to odjust with lobor Thes innies tts the lors herm solution
.
.
.
wwil true
wich imolies choosins H 50 1 5 Thst MRTS
But because K cart be warred MRTS W le JusT for y
produdion level But of
=
=Y.
o
.
.
This the aqualilg wont hold and well be prodvong ot trquer O Ntan necessgry
.
5.
.
l =
odlimal frow
pont
.
Sho 0.0 522 3 bath
re
.
trguar Tham therr opdings

strort tan
eaxponsion
rß
 3. C
short comretive equilioerrum

-ron
The markert perfodly a deilt the for its outpurt
is
compeltice lf eachs firm prietater camnost sismifrcantly affect market

.
is
price

pNces BI Impuis
.
.
Caraderistias of
perfedly comretitive markes

:
ß
Au ard marsingl reverve ore equol TB 1.
S

.
.
I
w
Mzny bugers and selles
Rrqi Bq
3
-
undher thrs carsderisikes

.
.
ldemtical poduls
AR
i

The firm demord crice

's
-AII-PETD
full irformation the s
ais Ks torizontss of

transadron morther price

" MR

5AI+P
No costs

.
as

.
INB emiray Garriors
B
.
2
Í
* moximization in the stant run
profit
.
resulting from the misxinieztion problem
:
Max RIaI FOCn
DRTP
-Pq-SCIaI
O

PESMErqEl
-SMERqE)
ED

-D
sylisfred if the marairol

lqe
This cordition will be ast is

Soc 7
50
-
+
z
Incessing
dq

.
î
2
s
b

OSME
OaK
+L?O
but wil the firm ve willing to produce ge
BuTmotl Ps
?
shutdown pricel minimum frice to supply z rositive
Bnly if

is PEAVCIEN PE SMCIED AVCTESI SMLIESI PS

regeit fat sCla

.
.
*Ierfol-FC.
ß

PET SMC
-VORI-FCI-FL
XP

-SAVE-SNL
PLTe = PIAVCIITY
AUCIQHI
VGIQII PI - SAC
VIRT
-O
grr
XIlP
-SAC
Sor the
-
firm profit saug
o
maximices when frre SNC
-
SMEP P
SAC - B

SCrGI
9
-A
terefore comrettive
-

at --
-

market PeSMC
s

in a orn
-
- -

-
-

E
-
-

r
-
-
.
SMEEBSAC

-DPE-SCIGIYD
"
point for on effrciet firm The firm will chosose q
4
.
SMG PqOVZIqES
-POSAVE-
50 that the equalig is respected
.
smexpeSAG -sPa-sc/qIxo
B 6 y the market Al whhot levels wil
ie frrm 9 q SMGEP SAVCBPE TWEIGES
.
Is siven troce

verefils the
produca At te ores Ift can susibin iselfr he 34 The ores
At
brear oreriny dosis will
.
?.
imply loositg more nomdy in uyrrzlle
cover of least the
bost of
Brazironil eiwsiryule cosis Bqewerqti ihe hrabligth represents the
cosis soles wont cover ItI Mryn
/uacouse
supply curve for firm
te thar
our
This topners PIAVC In stortron not 35 831. MnwB
.
when MSAC soorly spernins
.
.
ard still the firm wwill armoose to
produce IF RISAC implies cowerrs all of the carroble
.
.
casT brd some
of he Rixed EOST
MII the
.
SGIGHY b therefole will tove losses
0
compgny sion we because we cnt our losses
.
oran
frrm the fixed COSTS RñO
.
tere ae cower 311 of our u berefarts
3sT.
Jre rositiva zoB
It Broducer shurnlus in the short ran

.
PS Is the exasS bf the revenwe from shelling s hood sve the wioimum amownt of maray necessarey for the selser Yos be curling to produce the abody le the marainal cost

:
.
PSETFFIP PqF RIEEI

-VCRqEN
-SMETaNIdq-
-VCIIEY=
us
reiation wrth verefits

.
RERNGER REAS

-IUCTFCIPS-FE-A
-FC
PSeETFE

Ishort marker supply curve

-rem
In the short ron the number of firms is
siven by 5
.
therefore the torizinizl of frrms
asIPleslele EquIPI a is sarm surrrily curwes
.
.
Remembers It he lors to the
pofrts
o
in the start ran Desmar but con differ from SAC In rom hove be zeror becouse of arbitrose

.
.
Condition imposed cn The atropexit of firms frosmn the Iroustryg Terefore B Aus also
Iuplies that in
the long run firmns gre cost

-SMC-AC.
.
-effreat.
choosios Ie conbratians
optimal of romputs
.
the
Alsor a firm in lors run wistes to minimice cast This is achreved st the point whae
WeMI
MOK
This will be the firms
exponsion poth
.
.
-MRTSKL
 Xz

ii
W
ñemrstua
MImon
-aaridedlal
a

agribraly

BIPTKPPYPPMP I pr Fl
.
.+
Masto
krer
-n
's
mer a
bleahpetaeMPr
-
Y
TEE höt
IIAld EHIPT Ie kiwßr
Her
.
Ñ
!'I-ITIHIIE-T-EOIS
-
ß
AIHIL
*

s bubaining contnsant demords

ael we h qñe Tsee

,
auf i 9-
0
-mp=bee.K
-P-efraki-a
/tkP."%.
.
letkPr
peedlame/en
qukeWfek
hefert qtWfar
PTEPIP ' EE E
-HE-WE.H
-IPIE.IPa
by
EEIL
Ps
-HFr.Tn
'X
G
-ÜYÅ
q
-1t
FWf
U
je -

Weti
Wr
q 1-F.
FII Tx e
-Ex-GE.
=tpiti
CEW
.
+VEwerti
fasei
q ho
IE
c
-WE.
TWFt
.
I *
*.
afarti
 q
=Asakß
Ist Marsinol produas of immais 2 Constram for dimiistias maginal prosduds
:
nd.
.
we wovld neew to regative secord
axplandkBso imrose
-

Me
.+agIld
o
-
ordar derivatives the imnuis
s
on

.
j l

MPk
agIlkd apbhlb 12 50. 212
=
o
-heo
0
x
zk
wich under assummlion of
psitive
aara
comstarisr and añl Bülrwill
rosilive

-lipiaallibeo
Bot imputs hore

.
morsinal
alablb 3 we Nue

lwoys
.
rrsduùs

-lliir-zsed
.
Brd effect af an Inceose in k for
MP Ith Averace produci
ord o
dlostrcities of swirut with resped
,
-
We set the cross
im mut
of kil to
.
con
B
-deriwaties
S orz
the
sreck offedt
o EK
+1
.
AP
0
=I
mq ALakß
apztALTlB
+Aallavlyß
Apęü
L H
aMf= Bl B
4
Ble
+
pssitive
Aaflan
us
is
ak
Aaprailyß la fra apa
.
.
s +
-ies
3

Meefore AP
-

E
we can conclude bot an incesse rn
s
alß Alaly po
.
A
-MP
3
?
will
copital increase laber prodvorvrig l
.
AIBKIB
-1
MPIn
Eie
HAKBKIOH
Sih
BII
.

apk
ALaKBis Eßwß
Elasticly substiiutiom
=

MRTS and
.
of
3=B
ALAG
.
3
I

aHBly
-a-n
AP AaIaKB
MRTs
APR elostally
-
a
io the
6 Returns and
-S
scole scole
th:
.
AlaBHIB frauil uB
-d
,
of the
homerels production function
BI aI
.
?.K"?
- 9
o
Muproa
-
TATHTHB ATZFIALikd
1
A iurd
-DQETRALTK:
FIAILTE

lA

6--? YI
1XK3s
rois
Me Meefore the funddion
dmas.
furdion is tomoaereous of decree r
hos increasing
-2.
returrns too scole
O
.
Il
BMRTS MNs B
-s
-
o
-

E eal mis at B
-ealt
"
HB 72=13 6+1
B
4ak
.
B.
.
aEr E
2 T S
I =
ACPIP
a+3
MALRKD
.
-3
 q
C
=loprshes
SC

.20o0t2ro
Ist Short Rum costs for K WeB

+SBiW=l.
.
3
VO 12. Spon

-tol=
31

z0B0
E
-lwtku
9
Phod
l le E
92 - -
-
- - - - - - - -
-- - I
10

-
hages
?s
pzk

ç
-+2
2
r0
Eürz t ll
3.90
I 93 2
132,
ooo
2 Long ron cost curves and cost elosticity
nd:
.
In the lors rumnime tyne io minimuce cosis H I ro longer fixed
5
.
.
Ei bwt KV 121 + 3
5
K.
-s
S the production furndion constrain filikd trouah the deried from the losrgnaron set the Bollowina tarsenary condition
.T
s
nunimization proken

:
ae

Wü NRTS

I
-MRSs
s
Gerring the MRst

AME
E IOLONS KOB MRST
=
S
=
AMK

BML 29 SL SLOSkPs bors

G
51+
0sGors
E
s
.
a
-maso
0Ss
-0 0
2
0.5

Lor 5
f505-0
Io Polp Jis
5
orsljous
20.s
loyers
.s.
PMB
22
+
k-0
for n
-pries.
tangency condition
.
-
s
LEEI LE nNDHE
WES
2E
E min

Mt eWL s
exporsion poth
.
=IL
for n prices

VE
3I
Werz
Contingent I for prices
.
-
demands
o
.
E
+IDHP'SGOrS.7
IOIIPRSKPE IOFOrS KP KEE 1wask a k
Guf pvars
-
5
E PLOIS
aS
E
o.V0f
-
Q
K-3
=
KPrS
5
.
s
-
wore

L
GPSD
Y
E
-E
WJVS
q q 20 os E G
=L
=IOLPŞJLOrsuo
L
=IOL
zo
-IYPELSL-BLYsP
+
rBwßrs
-
Lones C fordron far
33T
rumn current
D
prces

T
12%535- 2-
EO+5I
cinniwiqiw w E
+VG-3
o129
20

qwßrs
Clurorgle W
pwrosth
.
ponsre

VO yos
qUOr
.S
qUOrS Wors t
E
.
3.qOr5.s
B
Ins
I
- Cost
elostictay
A
df
oq ą s

MEC
- arerose ad mashol costs
oblairis
i
0
MC
1.2
=23q
AC

-ME
AL
CII
+
312
as
owtpad tat niskes SC and C equol
:
-

swusttating the exponsion poth in the prosduction furration for 1-80.

I IPsopr
S
0I
loIIPSGP
0
100
3
8
9 =
e
as
0.3.
q
=
CEISO
.
. for kelor

q froqfssoors soo
-
5ro
C
-GOD
Graphical represatstion
.
P 6%
E 1.2.

52
-0 =
scho
aq zooo

SE 3
SAC
+
+200

-
=12.
zo00
sem
CM
+CM=I.Z
SAC
for the
.
nupriees cosei

vDBowOrs
s
-
-
-
- - -

-
- -

- -

x
-

--

éor
" I
 C tIooa tSDBB
-q3-2Dq2
MC 3
=
q.-20q2x1DBq
AC + SOOD
-q3-20q?
IDDL+
= 92-20 +100 +
q
I

becouse the lors the the know tbt MC to the

-AVeP
in firm reaches minimum sweone cost and ce
dve profit optimization

.
troulem
.
DAC 8000 5 - S
0 5000-- +2 2-20

Q21
2 000=
+
O
q-20
O1
22-20

qz q

E
2
firm equiliorrum
qßE
for q AC SOD SME
+P
me
+
423.
2 500
23
V AC
N
Ert
-ME
profiis

.
"!
3.20-7020
t1o0
-500 9
93
no 39-109 Hop - -
.
-
-

-
-
- -
s i

"
:
îî
far Ro
p
.Joo.
2500-3 2500. 3.500-1 Qo
+IBoo
P=
ODO
.
nunber of firms in tre mdustry will vei
zo nüso zo 21. 67 G
he
-

Indersircg aqwiliorrum
p
In the short run for this level
simebol
.
.
SMC
255 q
EMC
=
-500
6 39,3 :
l

"" "
93-2022 tIOOE
o
AVC VC r
7
-
q troo =1 300 LRsIlors ron surnde

E
=
.
oo
=
2-209
{

À
'
AFC
O =100

SAE AVGTAFC S
=
=
3O
IDoB 1082. or 15
B
oB
" in demond effeds in the stort rn
:
.
Iincreose
In the start with C q + 800 Because the the condition
3-205
run
operate stort ROSEm
-
r me in
IOD2+
-SAC
D.
does not need to hold The stock in demand will throw us out of
long rom equiliorram slors the short
.
run demyd curce
.
t
Getring the short on demora curve
.
verefris This impies Po SCm
Along the start demord the firm moximices
.
ran aurve
.
.
J

ScMi 397- IBE 392- Isecord equitron We to find the lowest 3 the
t
decree need prot wish
IDqTIOB-P
.
+IODEP-A
flrm wont prosdiveel
 392-+100- 10

P
bo trlIP
O

IDP POIP

's
"
.S
IIIO 17+/

P0-100+r2ps
RZIPO
IIO P

?-
.S.I00.
-PPS.
o E
2. 3

skwidow price AVG Supnly of the firm for the short run
:
-SMC
P

00
92-209 t 392-1 qtIoB
tiP
1oo=
,I?.
I

D
o

912
s-20)
2 B
q2-2D9.=
-
supply of the
mnousiry

.
o
q O
29-23-0 4=10
=B
soledotipps t
zooo

MEquro 6 E
=Ds
short rom
equilioricum
.
SOIIOOtRP TRPP 2666. -1 GO
?"
+3000-31
CO
'=
SOICOO

000-I8P
tT -1 S

+RPPP=I
0ICo0
-31
G R G
0O0
t Probootiap
O IP
12P=320-15OP
12

b00.
16000- 10

=
lootiae
I8P
.12961-230.
no
o
so
B+

IOZO0O
.129GBZ-202.IB
Prasa
2
pr
231.00
202. 202.82- 01 296.
76.6879
from te bowest rosible

souwdon
A.
croose
II
wich
.
l
we
0.2001=
272 1639.32
DI -
129602
-

BG
.
39.32
Qa
+1D8zBl
Given that the stort ran
the number of firm is fixed we con
erred on inceose in firm produdtion
.
in

with temnorory bee fits

.
E
=21.Gf
the is the anput lewel thst the
I

The new equiliorium in the boray ron will return firms previous siva in
.
the technoloyy he the costron terefore
lons run as
lors has fries of imputs and ore
sore svere
.
.
mominal
cost and frice remons constant
.
hhi lors for
PeSoo Do Qs
150
q
+
Neww demard 37 long
.
+rooo.
=20.
ron
prices
short ron
eq
Rz 3000. 3 3000-3.300- ISBO q PG QB OP NE
+
.
+
39.32.
3D
=21.69.
-QS-1OS2.
P-s
finol lReq
1 R
.
Q -75. 95-2 M QB ISOO n 75
520-o
-
.
+BS+
+SBB.
e
B.
-015000
New hove tre rroustry due to the
firms eviered eximordrary mofits lowering prices
to the inro ore vefore the stoody ard
.
returraimey produdion to cost in the lors rom lawels
-minmizstion
.
"3
Bemystracionesi TI Dens T
s pegoriss s fres

2
.
Befimidion of indirect wtilify furction ZA
striet conwezilg of a
vtiltg fundrom IA

.
.
Non imcreasing in rikes prosperis
of the willig fundion ZA
sel
Conwetiiy Bf fezsible IA

.
lderilies derivation of the slwtsky equation

.
ZA
Me Roy rdarity
Torsency Berwwstron of
condition for an lievior solution lA

's
.
.
Mrcksran complimets gror tiatesion suostituies 2

A
.
Befinition of a siffer soow Ic
Defintran Ew
.
zra use of CV and
23

.
Bafirition of hidls zra sladstee rwuith Consumers surpius Use and defintiam 23

.
.
K
hragi
arorl demorshaion
Asumntors of revezlow frefererce treom Wesk oxiom
22

.
..
fruncade the furmaiznais Ncsom oF rswner
losreares ond possee prrce roeses ZC

.
Theory l Exredco wfiling itersmy Exreded wsle exredew

.
.
2

.
rerresaiser

."
utilis Atituedes towrard ristu Grapiaical

ß
homrsaererly he funation Ic
.
of demyrd
,
ISI
premrums 2
the Uricret
4
.
Befining torsency
s
te condition for
lß lem
furdra Deng 3.
!
mumizaran pasulem laxrendiie y rres .
.
Bemorstiste popertias ba the experditure Dat of
prodidtion furdion ad
efreiency 3

A
.
Iß
fumdion Relatorstip Wolnee te mazind 20 aerose
prode of 10
3

mr
A
properties of Isoquants
Derrve the sheparts lems from the expactulva 3
.
A
I
fundion Elostraty af swbstiution Bafirition 3 3
rd
cglawiurs
.
A
.
.
Retorns Yny saae hromsganerlng of he production
.
3
lCrß funtrom
A
za Befrition of ecomonic cost Bß
.
the diferen tires cost The short
3 of in
run SC SANC SAE
.
.
.
3
ß
" ß
for.Ve
3. B
.3I
share of the moraymal cost curve
33
/
Yorsency condition for
bry term cods
3
.
B
continsency demonds for imoois defiridion 3
.
,
B
Impust sulstiiction Sterbros lemang oplrcw lo cast 3
.
.
B3
Relatronshim vaineen shart and
lomry Ennelore
costs 3
ran
rom
.
ßs
short rom
comretive eequiburirum Garaderistres of a
rerfect
.
morker 32
.
lum timizatio Stheidrown
strort prosfid ms prices 32
.
-.
Brodvcer surps
BS
BUVEIEES 3 C
+
.
The theorem ICSTPS
.
invisible rard Masximizatro of welfse
32
.
zow how fr reaura Tha PeCmsu Cart esuibbow msximices welfyre
3
.
.
Long ron equiliorium comcilions 3
.
ß
Gropinica represalytion of a constant cost Cong run 38

laduistien
Ejercicros de projatica

.
2.16

1 shanse
st
demord of
Müloo in
prees

.
2 reevowation with
lospeyes
nd
Wsxixa rndex
price
Jn ch Im demsrer
3rao
prüpazi
.
Brd reevalwatian wrih
rosscre

Ith lool prrce fndex

.
1 Inital
s+
equiliuriarm
.
tQs
zuixi
moxwexaxzlexixz
tansencyes
PQ I
Jur
lo
traxzs tr
+
-
+MIS-0
-so
2S
o
S
.t
*
nixit paxz xziSD

züxr
ta PixotrzE
-loo
PREnKEk
Tr

-m
=PE2TI-s
XiTXZ U
WAEr
2
-Z5BB
-IDD
'Ers
ZPr
2 mixitrixienaPa
P2Tzsm
-

zn IrortuEn neiprinf thama

0
chorge in frices zpitrimus Zpr

Prot uo 7+ tE 2
xe-t2
2
x1+
2
-a
X
-oz
s
xr=IBB
1zS
xixxz t
2=J0
U 1250
-
Te corsuner is aff
wore
.
3 Losreyres index
r0
frice
.
I
po
V 1.53+ 100 2.30 +1.50
Poyems
so
.50+
57
CPePH
=
=15
?
0-
mis

roo
PIxlema 225+ 1.75=100
.
m
-mins--150
t tr37.5
=
s

t 27
He
2xr-15D
Boxo
r
consomers
2iZtras
MI m
+P
Is worse off X
thEIn
2-75.
.
New demand for 1
os
prices
!
MenSo U 2812.5
=
new

The corsumers is voltor ofr

te corswrer is wdrar off sfter this change
.
Ith ldeal prrce chonges

af
Amourt X t an ldcol noease

2
3 on

1
rd
's
Z
Wo
570
+
t X -2500
Uopros
.
2
2 =35.355339

X?-2500123PEX1
X

.2x1-2500s
Xa
X
=Zxi
2=70.7IBG
necessary m 2.35.35+ 72. 2+101.02
.s
IPaPIago
- III
bo 8

8120 81.82
.I
e0
I
o
.
St

New mus 1.33.35

possare frice Index
.
Now equiliurrum
pigo s
losreures

mposçrenfx
Zxr

+Zx=133.35
25.2+ 50
17 1.33
bxr

=133.33
s
s
231
tS0
tr
33.33
=
Xo s
?
3

X
246G.Gô
o
222222
xuß
v
-
Te orsumer B nore off
.
2. 19

l €
with on otiily furctiogn welmy
00.000
1
hollery dristey decession of the
st
Exredea utilitg ovicores

SO DSOOB

.0OD=E=
Dr ID DO + 1.25. In 100. In 80.000
123
73
0
+
0.
or

.
B01
7s
UB I yea BIS

60+95bor
as

1.857
.
-in
2 Insurgree
nd
.
lieszIG
o

IL
.7G
E 95.000 -0 U
+
+
ierefore the rist te will
corsumer is

-siwerse
chosse the insurone arytime

.
.
Second derroti deE
uandue risk
soversion
2ñDo
ve of
,
?
te be irdiferer velwer wAU
risyirs the
wekl the
boitery or wuyins insurgra wnter

3
lorth - 157- ell 57. 80.500.95
o
ll.
100, 000-98. 560.95 -5130.3
2.28

Resumer del esercioo

:
780 prolemy de mszimizzcron Bbseer la

:
demorda

commide cower
y
.
1=4-P9
U

-LTEI7-PO
probret P 95,000 425 4-

HtE-Rq-s
rishly 95.000. V 1616 5-
+ll.
.s
VIY T I - = losrycl 91570. 418
-RWIYaIEW=II.
rruegist rawcuzd

-
57I.
mox Was
-NERWIut
max

VIYaI
I 4-4 120. 552.
=
Cs
sin
q

1e4-P9
aztq

-Ltşlarpl
Bemano for insurance

mecdiis focm
af
witere
Yrüy =0
-11
4
z=4-L4q-1I
resuelves pars
soee sfrirziërtt
hoximization

.
problem
demosrons atIeI
.
de seguros

.
Max w Inrylt ralnryzi tiryl
F
.
=
-
20 Con 1 demorar rask P oulear dl
3 pas

a
msxima premrum
S

.
.t=yre4-Pq
azüsy tq 4-
Lta/7-PS
densis
30 Dpers Eon 1 ps ressiver

z
-L
-pqos
t ( nezcnitss
os
.
rimigmsitezlafaltalams

foc

F
ungintrz
24
R tos 1
1
aqu au
anqt G
F
-2if
-6tq/7P50
4tgrn-n'/7-p.
riecaural

nr
7-
7
-1- f
ß
122 fror rzm pq

q
solvins
aal
9-
"
t -3
F
s
G
-LtŞlZ-Bl
-LtERHqD
hoq
221m
Rz
-ßzß
-
-
i

gmLaElnPl
Pq
Z
2pgon-e.S
224-22 -22 R
2P9-Pra-LItPq/2-PI-22Pry-W
Pyt
Py
Py
22
P TV
22
-Put
P9
2-P2q-M2Py-R2P2
Pq
Rzy
=Py-PLtBq-PRqwrZzPL
R tPL TR PuP
2d
a
2PLe
2y-Py
nzu E
Is demord
-
for

insurance
-pfu-t-rzh
qußlp

rau
-frynt-ralt
t
0
i n

Mppp
 224- b

0000-
ponsiz
- 17 129.

0000-op0000-2000
poup
to
7.

Plp
rz 25
=B.
23000- .1
850001
R

SSOO0P
2500
70

07-
n

7- 1

ßlp
o1
C 20.003
-
Y loo 000
oe
=
.
25000-83012
peloiozgeil zsooora

-ei
L 1
45
O
--5500
lp
7

o1p
so for
.
829
Po
9
s.
ssood
ep
P so 0.2901
"

.
0D
for B I be 5952.38
:.
will
=0.28.
cost of
Iiswran k o Pato 1606.07

premorm rore for a

complele cover
.
2507-00 For p =.20.000

l
7-ßl
- 20000 P
2
s00o-ssoop
D P 20000
P
2
22.

25030-85000
00
-
ß
t25 =
ODD
2ODODP?-I3SOODP+
O
+2.5 +0
2
P2-IO.SP
5I porzs
.
Bas
2.27

Ito me bobin the demard for insurance

.
gro ij
-pq
92+ i L ij
-
-Lal2upI
+q-Rq-s
maxwsriwiqiit rawiaal

moxwosriwlij fithtgfz
-ed
-pgltr
24 2 +22 F sr 44 taariuiens

]ntezlprend
50 10
qegzlhed
A+
sq 2
R 50
2,
g
Ggq
2.
vrydolny

2 M 3
uttafzT -
,
Qr221
Fpq
lPI
as solurg for
a
F
r.
b
M q
+
2lapd
+
q

zromuroz

527mpry-t-raL
2
and with n
.?
?
y
the
fropp o the denor yrres with diference of 22 ard P
-3?
-Frelp
Bauroild
for R 291
sy 80
2rP1
pas fordl

for
exP
2975
.
50

ondbecase Cn defiadionr yoh and proll 27

2200
.
recuse yophe

aolp

22 t Wich will dos beause po Paz

-pob1.
 reroso teorrà 39-

B1-23
.
Tenz ne

IE comnonative statkcs bahauiour

-ID:
of
consumar

Exmenditure furmairon

-3
Income consumption aur vai sat of
sptimal rorisr wwith price
comstgnt and stanging Income

.
Xz
Io
zornimo
iefaror

dergdr
y sood

so the

}
soou

ffarc
I 12 Inferror
mormd howb
good
.
1-s
.
am
M .3 MBx
Tangacy P Xiaaipl Play WrP

1
.
MRS -0

2I
o
in

+
us

ö lime

.-
balkrp Bodset rapprmd

2
,
MB
amlpimmi
an

na
X
* Inferror sBod clear F
.
1.52
.
am

50-

oinferros
HMP
E

VFm Y Neceseay
.s
or ny
Jrsere
-s
.
pesn lutumy rormos

.
sou Giffen 9
3
ood.
zß
0

Jß IOm Normal go
0d.
bis
ao
price consumpiion curce lpecl the saner with styrees in prres
,
Mx

PIo
m oun
-
erns

E
SB
Giffar
o
.?
GBOV
prrdansąirales
..
,
Af
ß

2 E3
sos suspitule
crassure
erens
elsdiady áoms
compiona
"
!
Yrg.
.
,
tte
hraks oprozsmi M is constant as
brg frys ofier he prise atoze the level 3 williy renoins sore
f
.
the cunde hos cefore with
his
slubslug

.
the all of inore ir some
M is congtant of consuner con extar
aprooch
:
new triees
.
Bom
suustidution effedi Effed on demse of 2 price charser keering M constont Alvoys orosile to the sign

.
.
If 6 confirmed
2
proec
cra ssumi is
-zer
r
.
fundamenial theorem of consumer theory Ifteil

A normal comnot be aiffer lf aBBd is normol demod will have a resative slore
good a sood z
.-the
.
.
Lo
E m
ß
7%
Lo - not bouah condidion
but
ami a 9000 B
necessory
L
4
beerrs
inferer
.Q00
0s
io beeiry a siffer soon
E

The demse fumaian is homseeus As lors hos relative rries and rcone hove equali tropordrorde cboracs
.
.
the demoyrd will le consiont No moratory lusion
.
.
kobspimi biebims
alemikmis
-

Dus homsceas of decree B bilemia

.
 Addins
-0

on prsperty

.
exipieeriasrimi em

The expenditure fundtron

.
berived the to u

*
.
from minimization for schreve
problemm morey incone

Xi 72.

=
P
Epirrum IMRS p
P
5.0 PfRs
min an dvids
lwey

+ uftrixal
on
s
by
FOC 22 Vug

.
Pr
fundram

-I
72- Xirp

.-WuIEo
w
Bs
ST y
blwed

+
UIIW for

-arihims
s siven

.
XiAz 80 In prostise subsiiiaita tre MRs
..
cleor

.
for

equrislences on the Bvoze lie wi

Xra ky bprrfa WIs Milprud o

piedesion demord functron
far marstoglion domard

.
In
..
o

.
ll
Willing furdrer far Arakusram

compensoled demord fundion

dernyái

,
Bfy suustilution effet
ep X

-Mrand
,
Then mne as io

Jp
."
of tive shorse
subsiiturle
.
re can Mf niudi setires

,
mitral

i
Exrerditure fundrom V Is ordinol
.
aaonod se moultinem

kmippiuls
po

tomscerens af dewree 1. mepol meriur

-
-o
Non decreosing in the rrree vedorr proof
.
miprurs pxtpata XF where
Xaberiwls U -- tyf aTn
hap 2. = En
2

.
3

X7
..
+1.2ort
...Patn
..n.
n

n.
,
ard
now focu peloi
2 "
.
-s
n
X+6Evi?n.
becauser by definition is fraed
2 U
20 sn 23

JMp + Nool bo Non decreasing in the

.u
50.
-s
XEeH/
13
.50
.
2U,
Fp
morce wector
.
us
stapards lemma

Shennords Lemma
as
The rartral the fundian with resped in the rin is the commensaled demand
deriuative of
expenditure price
.
furmatron far the Ith 933
d.
Pr s
=WWi
Denonsi

NSL P J
TXEY
Jan EMaGp
4 an
++
-vrrou
mirwd Eprrn YEt
8o+7
,25p.
-
9
s
J1p
concaully in prres of the
expenditure fundian
.
wility aundions mIrexke mImiki

nos
If we fyve convex
.
Los liest solution of

b Slepres lemms
.
bo
rasumptron hao
)
Only of the Iniferere sureve ae
stidly convex Meermre

ELinsursumn
ZA Dvaily teoryl SluBMy equation

-ZB
Berefils of price ctorges

.
Mnallred wtililg fundion
hombserers of degree B is ushnifumts bulnims

.
p Lo Property derived from he morstyllian hromozernig
ufxrrt IRMI s becouse xipimi slmibd

-a
...I-
Lo nonuinceasing in pries

.
wimind is the equiuslar of the experditure fundion
Bemorst

.
.
wimn

?
mimiwlmimts
T
n"
minoud ws

Mrroulds

FX1--aVIMTELO
urnomies uerimpunde mipoud Arairn

.
trormy
strimds otumsapls

.
hlewi mipiulmirie blmimd j
a
-
p ro p a r t y
froom Il
.
the Non increasing
pries
in

n -- auntr
Xht
ffrom the Logangradl
.
.
n-
X

oentily
awrapi
ti AlrimI s Rons
-o
auiram
-X
.
am
.
The with lo and te deriative witn resped
stlo of ire im deristre of
the Indireat wiiilly fundiren resred pree

Io ads us the demyrd

m
funtrom
,
L
Shepes lers

Eprabpuy XetWfu stored

.
Mo Bp T

,Es
mfnt
--ntond
a
2

n"
8 terma
.dIn.
fIt
o
+lYy
+%
1p
Sluisty equatron roobred
throwim the oraatia of the rialiesd
.
from the verbis
,
fylriwieblrimluerid

ap Ia
aans =

apIromeutnd ns
/AmcuEpr
zps am sherare temmo
,
.
3
Hlwimd

"
}
DAN al
/A
abrrm
=

blrimlufiriehcrivd
an Jn iblrmd
3
am
5
b mintriem
istirs
mrüps

af 0 - o
1
a iX
H.
.
m

ww
efulst afraia
 Roy identity
's
.
p 544 mX auian "

X*
.,
Xt.,
Stepards lomma = OGm =3

.
B.
rB

Provli tiE l-

xE-Merrowl
On
2

p
p y

's
-GIVPE
VE .
on

.
+S
Fundzneial Meoren of co theory

.
-suners
an 27
? 8
do =
+0
o
o
.r-o
ps
n.
eD
abilmim alvruini adrrmd
n I
Sluishs
)
Zallus eqwatiom -
S

..
am
ani

.DIm
If noow s
xß MW a If o womi
Mß ßt
formyl Ib lfermas

amasxB -

-
-

-
- -

-
-

ans
to Gorffer
f
noo

0.
ri

ZC ts
î
-20
abnso
Betarrord ssumpilons
.
Ist consumer sperds all incgre

Wurdke B crosen for coch siivaton

2
Brly
nd
ore
.
Br lhere exisi of of wich
MI
0
comb
orly ome price on rrom .PPote
cxt wank B sbedat
LßoP
.
PoXs
I corsume shores 3 corsistan
8h
re
.
PO
Poxi
.
wesk
PoxPeBoFsPiXrxPitr strom of
squezlew peferece

Corsuraer I Gelter Bf
5
.
If WIILP ws

If MIEPpuo consuner is cubise of

.
 .

The rale of storse of kost doterrnes te easromias of esosle

.
Caraderiskas of terfecly comeiitive marhds

2. 8
-

Xialtz
Ist Iaidig
-

find

s
op equilirurs
)
.
FeFBr

.-x2
Tory candfron p
xi
x vold ooo

-aoy
2=33
U

?+ xZ XzüSD
ß

-2500
--
trus

0
=bY
TE.D
MAS-D
Rz

Xi
PIX 23 tiaa n
V VePR TER
VI

.
+RTakaa
ßß
2
PxrxPaxztMoprfqtzrPzrzem
Zpzxzen
Ro
V TPRU

=MIAINI
t
,
2+
" brwind WIHr FpIs

.MPPP'D
xiüeo
.abimimi
*?
å
Cv
Aftor Io D 2500-/
GsI s 2 S
so0-m?.
0
dower chorse Bs ao Inbs
E.
M v
priee in aso
.1
0/Era'Eor
mibrad suol
=-53
-min
EV

before a frice clone The Clne in m

Is she Ie casue tas vell If hos st frosl but wit lrist presy
.
mInowil mInovdl 200-
PODO 2 Ie M
?
POODO 20
-

na
.
-B.
D
loo-los
D
Steporis cemnzo

onMInrul
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