Economics of Enterprise Answers

Given a short run cost function as TC=1/2Q2+40Q, find the minimum value of AVC and MC.

A firm operates in a perfectly competitive market. The market price of its product is 4
birr and the total cost function is given by: TC= 1/3Q3-5Q2+50,
a. What level of output should the firm produce to maximize its profit?
b. Determine the level of profit at equilibrium.
c. What minimum price is required by the firm to stay in the market?

26. Consider the following information for a particular economy.
Total population = 100 million Number of employed = 15 million
Total labor force = 45 million Natural rates of unemployment = 10%

a. Find the total unemployment rate
b. Calculate the cyclical unemployment rate

26. Consider the following information for a particular economy.
Total population = 100 million Number of employed = 15 million
Total labor force = 45 million Natural rates of unemployment = 10%

a. Find the total unemployment rate
b. Calculate the cyclical unemployment rate

27. Consider an economy that produces and consumes Bread and Automobile. Data for two different years 2008 and 2011 is given in the following table.
Year 2008 2011
Price of Automobiles $15,000 $20,000
Price of a loaf of bread $5 $8
Number of automobiles produced 200 320
Number of loaves of bread produced 100,000 200,000
Using the year 2008 as a base year,
a. Calculate the nominal and real GDP of 2011.
b. Find the value of GDP Deflator for the year 2011 and interpret.
c. Calculate the inflation rate in 2011.

16. Suppose a particular consumer has 34 birrs to be spent on two goods, A and B. The unit price of good A is 2 birr and the unit price of B is 1 birr. The marginal utility (MU) she gets from consumption of the goods is given below
Quantity MUA MUB
1 48 30
2 36 20
3 28 15
4 24 10
5 20 5
6 16 1

a. Based on the cardinal analysis, what is the combination of the two goods that gives maximum utility to the consumer?
b. What is the total utility at the utility maximization level?

Given utility function U=X0.5Y0.5 where PX = 8 Birr, Birr, PY = 2 Birr and the income of the consumer is, M= 240 Birr.
a. Find the utility maximizing combinations of X and Y.
b. Calculate marginal rate of substitution of X for Y (MRSX,Y) at equilibrium and interpret your result.

A rational consumer spends all of her income on two goods: Apple and Banana. Suppose the last dollar spent on Apple increased her total utility from 40 utils to 48 utils and the last dollar spent on Banana increased her total utility from 15 utils to 19 utils. If the price of a unit of Apple is 4 Birr, what is the price of a unit of Banana at equilibrium?

A person has $ 200 to spend on two goods X and Y whose respective prices are $10 and $20
a. Draw the budget line.
b. What happens to the original budget line if the budget falls by 25%?
c. What happens to the original budget line if the price of X doubles?
d. What happens to the original budget line if the price of Y falls to $4?

10. When price of tea in local café rises from Br. 5 to 10 per cup, demand for coffee rises from 3000 cups to 5000 cups a day despite no change in coffee prices.
a. Determine cross price elasticity
b. Based on the result, what kind of relation exists between the two goods?