Practice exercises

1. If two goods are perfect substitutes, what is the demand function for good 1?
2. In the short run, if the price of offices and factories in term of fixed cost decreased, what will happen to profits?
3. There is no Fixed Factor of Production in the long-run planning horizon. This statement is True or False ?
4. In Pareto efficient allocation, if we make one individual better off, it is possible to make all remaining people better off. This statement is True or False ?
5. Contract curve represents the Pareto efficiency in consumptions between 2 consumers about 2 goods. This statement is True or False ?
6. If a firm had everywhere decreasing returns to scale, what would happen to its profits if the price of inputs remained fixed and if it doubled its scale of operation?
7. Consider the production function f (x₁, x₂) = x ²x ³ Does this exhibit constant, increasing, or decreasing returns to scale?

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1. Consider the production function f (x₁, x₂) = 5x^1/2 x^1/3 Does this exhibit constant, increasing, or decreasing returns to scale?
2. In an oligopolistic market, Bertrand equilibrium exhibits the competitive equilibrium that prices equal marginal cost. At the equilibrium, there is no firm which wants to set the price higher or lower than marginal cost. This statement is True or False ?
3. Can the leader ever get a lower profit in a Stackelberg equilibrium than he would get in the Cournot equilibrium?