Search & Filtering
A tannery firm established five decades before in a rural village has polluted a river used by
local people for watering, fishing, cleaning and drinking. An organization working to protect
human right verified the illegal action of the firm so that a local government can measurethe loss to farmers and take legal action accordingly. The punishment imposed by the local
government is either to relocate the firm or pay compensation to victims to internalize the
damage made so far and abate future pollution emissions to the socially optimal level of
pollution. The relocation costs the firm 100 million birr while the compensation and
abatement costs it 75 million birr. The tannery firm goes for abatement and compensation.
Should the local government implement the policy change? Why? Does the policy change
have Pareto improvement? Explain?
An exchange economy, comprising consumer 1 and 2 each with Cobb Douglas (CD) utility
function
( )
and the initial endowments of fish and wheat available for each person to trade in a given
period are:
( ) ( )
( ) ( )
a) Find the competitive equilibrium demands of person 1 and 2 for each good?
8) An exchange economy comprising consumer 1 with Symmetric Cobb Douglas (CD) utility
function and 2 with Leontief utility function
( ) and
( ) * +
and initial endowments available for each person to trade are:
( ) ( )
( ) ( )
Price of good 1,
a. Find the competitive equilibrium demands of person 1 and 2 for each good?
b. Find market clearing prices?
6) Consider technology adoption decisions of two firms. Firm A has two possible types, either
high or low costs, with associated probabilities 2/3 and 1/3. Firm A observes its own type,
but firm B cannot observe it. Graphically, firm A knows which payoff matrix firms are
playing, while firm B can only assign a probability 2/3 or1/3 to playing the left-hand (right-
hand) matrix.
Consider a lottery with two equally likely outcomes, $ 25 and $ 144, with associated utility
function of individuals A,
( ) √ and individual B,
( )
a) Determine expected utility and utility of expected value of the lottery for each
individual?
b) Define and compare certainty equivalent of individual A and B?
c) Compare risk premium of individuals A and B?
Clayra allocates P 500.00 of her weekly food budget between two goods: X and Y. Suppose Good X costs P50.00 per piece and Good Y, P100.00 per piece. Construct Clayra’s budget constraint table. And Draw her budget line.
1. The Bok Chicken Factory is trying to figure out how to minimize the cost of producing 1200 units of chicken parts. The production function is q = 100L0.5 K0.5. The wage rate is birr 9 per hour and the rental rate on capital is birr 4 per machine hour.
A. Find the minimum cost of producing 1200 units.
B. Find the maximum output that can be produced for a total cost of birr 720.
following are the demand and supply equations for a consumer good: (20)
Qd = 300,000/P (Qd = quantity demanded)
Qs = 30P (Qs = quantity supplied)
(P = Price)
Find the market clearing price and the quantity at the equilibrium. Also sketch the demand and supply curves.
The inverse supply for coal is P^s=2+Qs. The inverse demand function for coal is P^d=20-2Q^d. By how much does the consumer surplus increases when a $3 subsidy to consumption is introduced? (Assume that no tax was in place before the subsidy is introduced.)
Clayra allocates P 500.00 of her weekly food budget between two goods: X and Y. Suppose Good X costs P50.00 per piece and Good Y, P100.00 per piece. Construct Clayra’s budget constraint table. And Draw her budget line.
