Microeconomics Answers

Pete enjoys rock concerts and the opera. The table shows the utility he gets from each activity: Concerts Utility from Utility from per month rock concerts operas 1 120 200 2 100 160 3 80 120 4 60 80 5 40 40 6 20 0 Pete has a200 a month to spend on concerts. A rock concert ticket is a20, and an opera ticket is a40. How many rock concerts and how many operas does Pete attend?

Max enjoys windsurfing and snorkelling. He obtains the following utility from each of these sports: Hours Utility from Utility from per day windsurfing snorkelling 1 120 40 2 220 76 3 300 106 4 360 128 5 400 140 6 412 150 7 422 158 Max has a35 to spend and he can spend as much time as he likes on his leisure pursuits. Windsurfing equipment rents for a10 an hour, and snorkelling equipment rents for a5 an hour. a Draw a graph that shows Max’s budget line. b How long does he spend windsurfing and how long does he spend snorkelling?

Jason enjoys rock CDs and spy novels and spends a60 a month on them. The following table shows the utility he gets from each good: Quantity Utility from Utility from per month rock CDs spy novels 1 60 20 2 110 38 3 150 53 4 180 64 5 200 70 6 206 75 a Draw graphs showing Jason’s utility from rock CDs and from spy novels. b Compare the two utility graphs. Can you say anything about Jason’s preferences?

Lee’s and Lou’s demand schedules for CDs are: Quantity demanded by Price Lee Lou (euros per CD) (CDs per year) 6 12 10 8 98 10 6 6 12 3 4 14 0 2 If Lee and Lou are the only two individuals, what is the market demand for CDs?

Max takes a Club Med vacation, the cost of which includes unlimited sports activities. There is no extra charge for equipment. If Max windsurfs and snorkels for 6 hours a day, how many hours does he windsurf and how many hours does he snorkel?

Online learning aids cuts the marginal cost of educating a student to a2,000 a year. The marginal private benefit is the same as that in problem 7. The external benefit from education increases to a4,000 per student per year. a With no government involvement and if the schools are competitive, how many students are enrolled and what is the tuition? b If the government provides the efficient amount of education, how many school places does it offer and what is the tuition? c Compare the outcomes in problem 8 with those in problem 7. Explain the differences.

1. Suppose that the firm operates in a perfectly competitive market. The market price of its product is 4 Birr. The firm estimates its cost of production with the following cost function:

TC=500+20q-5q²+0.33q³

a. What level of output should the firm produce to maximize its profit?

b. Determine the level of profit at equilibrium.

c. What minimum price is required by the firm to stay in the market?

2. Consider the following information for a particular economy.

• Total population=60 million
• Total labour force=40 million
• Number of employed=30 million.

Natural rate of unemployment=12%

a. Find the total unemployment rate.

b. Calculate the cyclical unemployment.

In a duopoly market, two firms produce the identical products, the cost function of firm 1 is: C₁=20q₁, the cost function of firm 2 is: C₂=20q₂ , the market demand function is: P=500-2Q , here Q = q₁+q₂

In a Bertrand model, the two firms set their price simultaneously, assume both firms do not have production capacity limits, and there is no collusion. What is the market equilibrium price and quantity?

If the two firms decide to form a Cartel, i.e. they want to maximize the profit of the whole industry, and then split the production and profit evenly. What is the market price? What is the industry’s total quantity produced? What is the quantity produced and profit of each firm?

Suppose that the SAC curve function of a firm is given by TC = 4Q³+2Q²+3Q²+Q+20

A. Find the expression of TFC and TVC

B. Derive the expression of AFC,AVC,AC and MC

C. Find the level of out put that minimize MC and AVC

D. Find the minimum value of MC and AVC

Consider two neighboring island countries called Felicidad and Contente. They each have 4 million labor hours available per week that they can use to produce corn, jeans, or a combination of both. The following table shows the amount of corn or jeans that can be produced using 1 hour of labor.