Microeconomics Answers

The Canada government wants to reduce the consumption of beer. A two dollar tax on each bottle purchased may reduce the consumption of beer under which circumstance(s)?

a. Beer is an inferior good.
b. Beer is a normal good.
c. Beer is an inferior good and the taxes collected from this tax are rebated to consumers.
d. Beer is a normal good and the taxes collected from this tax are rebated to consumers.
e. Both B and C

Jon's income-consumption curve is a straight line from the origin with a positive slope. Now suppose that Jon's preferences change such that his income-consumption curve remains a straight line but rotates 15 degrees clockwise. Jon's demand curve for the good on the horizontal axis

a. will shift left.
b. will shift right.
c. will not change.
d. might do any of the above.

Michael's Dairy farm production function is given by , where K is the number of machine milkers and L is the amount of labour hours he uses.

a) Does this production function exhibit increasing, constant or decreasing returns to scale?

b) Holding the number of machine milkers constant at 16, is the marginal product of labour increasing, constant, or decreasing as more labour is used?

Given the following demand and supply functions:
QDX = 1600 - 3PX + 0.4PY - 0.3PZ + 0.003I
QSX = 500 + 15PX - 2W - 0.3R
Where: PY = $160; PZ = $55; I = $4850; W = $11; R=$145


a) What is the equilibrium price?
b) What is the equilibrium quantity?
c) Calculate the point price elasticity of demand, at the equilibrium values (using the equilibrium price and equilibrium quantity in part (a). Show your calculation.
d) Find the point income elasticity of demand. Interpret your result.

Because of economics of scale, it is sometimes more cost effective for a firm to operate a large plant at less than maximum efficiency than a small plant at maximum efficiency”. Do you agree with this statement? Explain

Draw a set of indifference curves for the following pairs of goods and briefly explain each answer.

a) Hamburgers and carrots for a vegetarian who neither likes nor dislikes meat. (Vegetarians do not eat meat.)

b) Peanut butter and jelly for an individual who will not eat peanut butter sandwiches or jelly sandwiches, but loves peanut butter and jelly sandwiches made with two parts peanut butter and one part jelly.

Explain what we mean by Marginal Rate of Substitution (MRS). Using this concept, explain why market basket A, which is not tangent to the budget line, is not utility maximizing, while market basket B, which runs tangent to the budget line, is utility maximizing

Forey, Inc., competes against many other firms in a industry. Over the last decade, several firms have entered this industry and, as consequences, Forey is earning a return on investment that roughly equals the interest rates. Furthermore, the four-firm concentration ratio and Herfindahl Hirschman index are both quite small. Based on this information, which market structure best characterizes the industry in which Forey competes? Explain the characteristics this market structure and what happens to the Forey Inc’s profit in the short-run and long-run.

4. Given the following demand and supply functions:
QDX = 1600 - 3PX + 0.4PY - 0.3PZ + 0.003I
QSX = 500 + 15PX - 2W - 0.3R
Where: PY = $160; PZ = $55; I = $4850; W = $11; R=$145

a) What is the equilibrium price?
b) What is the equilibrium quantity?
c) Calculate the point price elasticity of demand, at the equilibrium values (using the equilibrium price and equilibrium quantity in part (a). Show your calculation.
d) Find the point income elasticity of demand. Interpret your result.

The MRTS for isoquants in a fixed-proportion production function is?

a. zero or one.
b. always zero.
c. always one.
d. zero or undefined.