1. A consumer splits their income equally between two goods. If the price of one good increases by 10% and their income increases by 5%, show that the consumer’s optimal consumption bundle will change despite them being able to afford their original bundle.
2. When estimating a demand function, explain why fitting a line of best fit through observed price and quantity combinations over time is not likely to yield good estimates.
3. If a firm uses only capital and labour, show why the cost minimising combination of inputs sets

Make clear comparisons between the predictions of the economic theories covered in the module and the empirical evidence for your firm. Are the strategies adopted by the firm optimal? If so, why? If not, why not? How might they be improved?

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