Microeconomics Answers

Assume that a firm in a perfectly competitive industry has the following total costs schedule:
Output
( Units ) Total Cost
( $ )
10 110
15 150
20 180
25 225
30 300
35 385
40 480

a) Calculate and graph a marginal cost and an average cost schedule for the firm.
b) If the market price is $17 per unit, how many units will be produced and sold? What are profits per unit? What are total profits?
c) Is the company in long-run equilibrium at this price? Explain.

If there is an increase in variable costs are marginal costs affected?

Assume, in an industry where firms are making an economic profit, the creation of an internet platform has broken down all entry barriers and resulted in a huge increase in the number of firms entering the industry. What will be the implication on profit to the existing firms in this industry? Use graphical demand and supply analysis to support your explanation. 5 Marks

explain how inflatiob unemployment trade off is not feasible under adaptive expf
fectation

answer in detail.. this question consists of 20 marks
Consider the overlapping generations model where each member lives for two time periods ‘t’ and (t+1). Assume that individuals work in time period ‘t’ and earn wage income, while they do not work in time period (t+1) and survive on interest income. Explain the impact of an increase in interest rate on consumption during time period ‘t’.

In a particular town there are 100 cars and 50 motorcycles. Each car owner has a demand curve for petrol given by: Qdc = 20 – 5p for p ≤ 4 and Qdc = 0 for p > 4. Each motorcycle owner has the following demand function for petrol: Qdm = 15 – 3p for p ≤ 5 and Qdm = 0 for p > 5. Prices are expressed as SR per gallon, and quantities as gallons per week.
a) If the price is SR 3, now many gallons of petrol per week are bought by (i) each car owner and (ii) each motorcycle owner?
b) Sketch the market demand curve for petrol (that is, the combined demand from car and motorcycle owners).
c) Write an algebraic expression for the market demand function.

A demand schedule with a constant elasticity of one will be:
a) vertical
b) A curve with the same slope at any point.
c) a straight line
d) a curve with the same area beneath any point
Explain why?

Consider the overlapping generations model where each member lives for two time periods ‘t’ and (t+1). Assume that individuals work in time period ‘t’ and earn wage income, while they do not work in time period (t+1) and survive on interest income. Explain the impact of an increase in interest rate on consumption during time period ‘t’.

differentiate between a) Harrod neutrality and Hicks neutrality

Consider the pay-off matrix of a game given below:
Player1
Player 2
I O
A 1,1 3,3
N 2,4 4,2
(a) Find all the Nash equilibrium of this game. Which player(s), if any, would have a
dominant strategy?
(b) Suppose that player 1 moves first by choosing either A or N. Players 2 observe
player 1’s action and then choose I or, O. For every action combination, the player’s pay-offs are the same as in the above pay-off matrix. Draw a tree of this
new game. How many strategies does player 1 have and what are they? Find all the
sub-game perfect equilibria of this game.