Microeconomics Answers

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.

Question 1. Nimbus, Inc., makes brooms and then sells them doorto-door. Here is the relationship between the number of workers and Nimbus’s output in a given day: Workers Output Marginal Product Total Cost Average Total Cost Marginal Cost Workers Output Marginal Product Total Cost Average Total Cost Marginal Cost 0 0 1 20 2 50 3 90 4 120 5 140 6 150 7 155 a) Fill in the column of marginal products. What pattern do you see? How might you explain it? b) A worker costs $100 a day, and the firm has fixed costs of $200. Use this information to fill in the column for total cost. c) Fill in the column for average total cost. (Recall that ATC=TC/Q.) What pattern do you see? d) Now fill in the column for marginal cost. (Recall that MC=ΔTC/ΔQ.) What pattern do you see? e) Compare the column for marginal product and the column for marginal cost. Explain the relationship. f) Compare the column for average total cost and the column for marginal cost. Explain the relationship.

Question 2. Based on market research, a film production company in Ectenia obtains the following information about the demand and production costs of its new DVD: Demand: P = 1,000 − 10Q Total Revenue: TR = 1,000Q − 10Q2 Marginal Revenue: MR = 1,000 − 20Q Marginal Cost: MC = 100 + 10Q where Q indicates the number of copies sold and P is the price in Ectenian dollars. a. Find the price and quantity that maximize the company’s profit. (Monopoly profit) b. Find the price and quantity that would maximize social welfare. (Competitive profit

Given a short run cost function as TC= -Q³-2Q²+60Q+100, find the maximum value of AVC and MC.

a. Determine the total fixed cost(TFC) for producing 100 and 300 units of outputs, respectively.

b. What is the average fixed cost (AFC) for 100 and 300 units of outputs?

Cosider the following short run production:

Q=6L²-0.4L³

a. Find the value of L that maximize out put.

b. Find the value of L maximizes marginal product.

c. Find the value of L that maximizes average product.

Given utility function U=X^0.5Y^0.5 Where P_x=4 Birr and p_y=4 Birr and the income of the consumer M=240

a. Find the utility maximizing combination of X and Y.

b. Calculate marginal rate of substitution of X for Y (MRS_x,y) at equilibrium and interpret your result