Economics of Enterprise Answers

1. Explain how a carbon tax will affect the equilibrium market quantity of fossil fuels and the socially optimal quantity of fossil fuels.

 Logically the change in the price of carbon based energy will affect imports and exports between the US and China. China has five of the global top six businesses producing solar panels, and the US is the largest producer of new, fuel efficient commercial airplanes in the world (and Boeing’s 737 Max has been cleared to fly). 

1. If we imagine that these are the only two products and the US and China are the only two countries, use the concept of comparative advantage to explain how the US and China could benefit from trading airplanes and solar panels?

1.     Given TC = 100 + 60Q – 12Q2 + Q3, find:                                                

a.      The equations of the TVC, AVC, and MC functions.

b.     The level of output at which AVC and MC are minimum, and prove that the AVC and MC curves are U-shaped.

c.      Find the AVC and MC for the level of output at which the AVC curve is minimum.

Given production function: Q = L 3/4 . K1/4 Find out the optimal quantities of the two factors using Lagrangian method, if it is given that price of labor is Rs.6 and price of capital is Rs.3 and total cost is equal to Rs.120.

In the short run, a monopolist will shut down when

a)     average variable cost is greater than price at all output levels

b)     price is greater than average variable cost at all output levels

c)     average total cost is greater than price at all output levels 

d)    average fixed cost is greater than price at all output levels

. Find the loss to the society because of Monopoly

a)     Area a + b

b)     Area a + b + c + d

c)     Area c + d

d)    No loss to the society

Price Quantity Total Cost

2,000 1 1,600

1,800 2 1,800

1,600 3 2,000

What would be the profit for the monopolist if he choose to produce 2 units of the good?

a)     1,600

b)     1,800

c)     3,600

d)    2,000

. Price Quantity Total Cost

2,000 1 1,600

1,800 2 1,800

1,600 3 2,000

For the Monopolist find the TR when the 3rd output is produced.

a)     2,000

b)     4,800

c)     1,600

d)    3,600

1.    Given the following cost function: TC = 1500 + 15Q – 6Q 2 + Q3            2 marks         

a.    Determine the total fixed cost for producing 1000 units of output and 500 units of output.

b.    What is AFC at:

                                                            i.     1000 units of output b)

                                                          ii.     500 units of output iii.

c.     Determine TVC, AVC, MC and AC at 50 units of output.