Microeconomics Answers

Fiscal policy needs monetary policy to be fully effective. Illustrate this statement using the IS-LM model

Using two goods X1 and X2 with their respective prices and , where both goods are normal goods. If the price of good X1 decreased from to , Using a clearly labeled diagram, explain and identify using either Hicksain approach or Slutsky approach the:-
i. Total change in demand for X
ii. Substitution effect
iii. Income effect

A policy analyst has shown that the price elasticity of demand for salt is 0.85 while that of visitation to the national parks is 2.1.
i) Argue whether this scenario is feasible
ii) By what percentage the demand for these two commodities change, if as a result of a tax policy the prices are increased by 8 percent?

With a long-term view, which specific two budgets are the most relevant to the governing board and for what reason

sandra uses two mobile cell phones (a Digicel and a Lime phone), to make her monthly calls. Sandra budget only $7,000 on telephone calls per month and the cost per minute for digicel and limeare $2.99 and $2.89 respectively.

write down the algebric equation for Sandra's budget constraint.

Q5Using two goods X1 and X2 with their respective prices and , where both goods are normal goods. If the price of good X1 decreased from to , Using a clearly labeled diagram, explain and identify using either Hicksain approach or Slutsky approach the:-
i. Total change in demand for X
ii. Substitution effect
iii. Income effect
Q4Under a perfect competition the price as sh. 6 per unit has been determined. An individual firm has a total cost function given by C=10+15Q - 5 + . Find:
i. Revenue function (2 marks)
ii. The quantity produced at which profit will be maximum profit (6 marks)
iii. Maximum profit (2 marks)

Q3.A consumer has a Cobb-Douglas utility function (x1,x2)= 0.5inx1 + 0.5inx2. His budget constraint is . Set a lagregian function; hence derive the optimal demand function for goods X1 and X2.
Q4. If the demand function face by the consumer for good X is given by
X=20+
Where X = Quantity demanded, M = income and P = Price of product X.
Assume his original income is Kshs. 6400 per month and price of good X has increased from Kshs. 20 per unit to Kshs. 40 per unit. Calculate the magnitude of total effect (TE), substitution effect (SE) and income effect (IE) resulting from this change in price

The Lumins Lamp Company, a producer of old-style oil lamps, estimated the following demand function for its product:

Q = 120,000 – 10,000P

where Q is the quantity demanded per year and P is the price per lamp.

The firm’s fixed costs are $12,000 and variable costs are $1.50 per lamp.

a. Write an equation for the total revenue (TR) function in terms of Q.
b. Specify the marginal revenue function.
c. Write an equation for the total cost (TC) function in terms of Q.
d. Specify the marginal cost function.
e. Write an equation for total profits (π) in terms of Q. At what level of output (Q) are total profits maximized? What price will be charged? What are total profits at this output level?
f. Check your answers in Part (e) by equating the marginal revenue and marginal cost functions, determined in Parts (b) and (d), and solving for Q.
g. What model of market pricing behavior has been assumed in this problem?