Answer to Question #174960 in Microeconomics for Humphrey

Question

Mrs. Patricia Banda is the owner-manager of a small restaurant specializing Zambian tradition  cuisine. The daily demand and supply schedules are given below, over the relevant ranges of 𝑃 and 

𝑄.

𝑄^D= 𝑃² − 175𝑃 + 7500

𝑄^S= 𝑃² + 25𝑃 − 1250

Mrs Banda does not identify the equilibrium price from the onset, instead, she starts from some 

arbitrary price and continues to make daily adjustments depending on the surplus or deficit from the previous day. That is, the price adjustment is given by

dp/dt = 0.01 (𝑄^D − 𝑄^s)

a. Find the long run equilibrium price, 𝑃^*

b. If price is initially 20, deduce an equation for price, 𝑃, at time 𝑡.

c. Comment on the behaviour of price P in the near future.

Question Three 

Given the production function 𝑄 = 𝐾³ + 3𝐿²,

a. Describe the behaviour of the marginal productivity of labour as more capital is added.

b. what is the marginal rate of technical substitution between capital and labour?

Answer 1

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