Question 5:

If a firm really had decreasing returns to scale, dividing up the scale of all inputs by
two would produce more than half as much output -- thus the subdivided firm would
make more profits than the big firm implausible
If a firm with decreasing return to scale at all levels of output devides itsself into tow
equal-size smaller firms, its overall profits are likely to increase due to the potential
for lower arerage costs of production in the smaller firms.
Question 4:

The statement is true.

The intertemporal budget constraint is a mathematical representation of the trade-off

between present and future consumption. It states that the present value of current
and future cash outflows cannot exceed the present value of currently available funds
and future cash inflows

The budget constraint can be expressed in terms of present value or future value. The
future value of an income stream is the amount of money that will be received at a
future point in time, given a certain interest rate. The present value of an income
stream is the amount of money that would need to be invested today, at a certain
interest rate, to yield the same amount of money as the income stream in the future
Therefore, the budget constraint for intertemporal consumption can be expressed in
terms of either present value or future value

Question 6:
1. True

This is because fixed costs remain constant regardless of the level of output. As
output increases, the fixed cost per unit decreases, leading to a decrease in
average fixed cost
The average fixed cost AFC is calculated as the fixed cost per unit of output. It
is given by the formula
When output increases AFC keeps on decreasing. Reason: AFC = TFC/Q Q=
level of output TFC is fixed cost which remains constant with respect to output
level. As Q increases ,AFC will decrease
Where FC is the fixed cost and Q is the quantity of output produced. As the
output increses, the average fixed cost tends to decline towards 0. This is
because the fixed cost is spread over a larger number of units of output.
However, it never becomes 0. This can be visualized in a graph where the x-
axis represents the output and the y-axis represents the AFC. As the output
ncreses, the AFC curve declines towards 0 but never reaches it. There for, the
statement is True
2. True
Average total cost is the sum of average fixed cost and average variable cost.
Since average fixed cost is always positive, average total cost must be
greater than or equal to average variable cost. Total costs include both
fixed costs and variable costs. Variable costs, as the name suggests, vary
with the level of output (e.g., raw materials, direct labor). Average
variable costs are calculated by dividing variable costs by the number of
units produced. Since total costs include fixed costs, they will always be
greater than or equal to variable costs
Question 7:
Question 3:

The indifference curve for Randy represents the combination of hours per
week spent studying economics and hours per week spent studying history that
yields the same level of satisfaction for him.This means that as Randy
increases the number of hours spent studying one subject, he will require a
decreasing number of hours studying the other subject to maintain the same
level of satisfaction. The slope of an indifference curve is the rate at which
Randy is willing to trade off one subject for the other while keeping his
satisfaction constant. In this case, the slope of the indifference curve will be
negative. This is because as Randy increases the number of hours spent
studying economics, he will be willing to give up fewer hours studying history
to maintain the same level of satisfaction.
The question says strictly convex preferences. That means indifference curves
will be curved. Remember, the definition of strictly convex preferences is that
if you draw a line between two points on the same indifference curve, then any
point on that line will be strictly better than the two endpoints. If the
indifference curves were linear, then the points in between would be indifferent
to the endpoints.
When it says "The more time he spends studying either subject, the less happy
he is," it's just saying that his preferences are monotonic. That means for any
given amount he studies for each subject, he would prefer to study that subject
less. That means for any given point, he prefers any option southwest of that
point.

b. As we move from left to right along one of Randy's indifference curves, the
curves will get steeper. This is because Randy has strictly convex preferences,
which means that he experiences a diminishing marginal rate of substitution
(MRS), which means that the MRS between economics and history will
increase as he moves along an indifference curve. The slope of the indifference
curve will become steeper.
Question 2
Question 1: