Microeconomics Answers

John`s income drops from 100.000 € to 90.000 €, so now he takes 3 holiday instead of What is his YED fo holidays?

Suppose you manage a local grocery store and you learn that Imtiaz super Market is about to open a store near you.

Use the model of monopolistic competition to analyze the impact of this new store on the quantity of output your store should produce (Q) and the price your store should charge (P). Note, we are assuming you each sell one representative good.

Explain how the opening of this new store may affect your business. Be sure to address what can happen to your customers, supply and demand, and prices. What will happen to your profits? Show graphically and explain your reasoning in detail.

Explain at least one strategy that could be used to defend your market share against the new store (e.g., address what you are going to do to keep your customers).

a seller of boiled eggs faces a market price,P=ksh15 average total cost of ptoduction,ATC=10 and output,q=150,what is its profit level?

Assume that beer is a normal good. If the price of beer rises, then the substitution effect

results in the person buying ________ of the good and the income effect results in the

person buying ________ of the good.

A. more, more

B. more, less

C. less, more

D. less, less

6. Which of the following is true regarding income along a price-consumption curve?

A. Income is increasing.

B. Income is decreasing.

C. Income is constant.

D. The level of income depends on the level of utility.

7. Joe’s coffee house produces coffee drinks under the production function q = 5KL where q

is the number of cups generated per hour, K is the number of coffee machines (capital), and

L is the number of employees hired per hour (labor). What is the average product of

labor(APL)?

A. APL = 5

B. APL = 5K

C. APL = 5L

D. APL = 5K/L

Muoki says, “I’d rather see an action movie than a comedy, and I’d rather see a comedy

than a foreign film. But given the choice, I think I’d rather see a foreign film than an action

movie. Which of these statements about individual preferences is violated?

A. Muoki’s preference ordering is complete

B. Muoki’s indifference curves are convex to the origin

C. Muoki’s indifference curves are negatively sloped

D. Muoki’s preferences are transitive

2. Peter likes one cup of tea with two teaspoons of sugar. He gets no extra utility for an

additional cup of tea if he doesn’t have two teaspoons of sugar and no extra utility for extra

sugar without a cup of tea. Paul has,

A. Linear and negatively sloped indifference curves

B. Linear and positively sloped indifference curves

C. L-shaped indifference curves

D. Vertical indifference curves

3. Diminishing marginal rate of substitution of ugali (X) for rice (Y), MRSXY means that the

rate of substitution of ___________.

Donald derives utility from only two goods, carrots (X) and donuts (Y). His utility function

is as follows: U(X, Y) = XY. Donald has an income (M) of $120 and the price of carrots

(PX) and donuts (PY) are both $1.

a) Find the marginal utility that Donald receives from carrots (MUX) and from

donuts(MUY) (4marks)

b) Determine the marginal rate of substitution of X for Y (MRSXY)(4 marks)

c) How does MRSXY change as the firm uses more X, holding utility constant.(3 marks)

d) What is Donald's budget line and relative price (PX/ PY )(4 marks)

e) What quantities of carrots and donuts will maximize Donald's utility? (5 marks)

Catalina Films produces video shorts using digital editing equipment (K) and editors (L).

The firm has the production function Q(K, L)=KxL, where Q is the hours of edited footage.

The wage is $25, and the rental rate of capital is $50. The firm wants to produce 3,000 units

of output at the lowest possible cost.

a) Find the marginal product of each input.(4 marks)

b) Determine whether the production function exhibits diminishing marginal product to

each input.(4 marks)

c) Find the marginal rate of technical substitution(MRTSLK) (4 marks)

d) How does MRTSLK change as more L, is used holding output constant.(3 marks)

e) Find the least costly combination of labor and capital to produce 3000 units (5 marks).

The marginal rate of technical substitution of labour and capital is defined as the rate at which the quantity of

1.      The demand function for plantains is Qd =100 – 6P while the supply for plantains is

Qs = 28 + 3P where Qd is the quantity demanded, Qs is the quantity supplied and P is the price of plantains.

(a)   Calculate the equilibrium price and quantity for plantains.

(b)   Plot the data on a graph

(c)    On the same graph increase the supply of plantains,.

(d)   State what is the impact on equilibrium price and quantity?

1.      Jose spends her income $40 on two goods. Good X and Good Y. The price of good X is $8 and price of good Y is $2.

(a)   Draw the budget constraint to show how Jose can spend his money on the two goods.

(b)   Calculate the slope of the budget line.

(c)    If the price of good X increase by $2 what will happen to the budget line?

(d)   If the price of good Y decreases by $1 what will happen to the budget line?