Microeconomics Answers

Increase in net capital inflow will increase interest rates in the domestic loanable funds

market” – do you agree with this statement? Explain by drawing a diagram and

comment how you think investment will change if there is an increase in capital inflow.

When a cold snap hits Florida, the price of orange juice rises in supermarkets throughout the country.

“Since both the demand and the supply for the good are very blank, I am confident

that prices will change very little no matter what happens.”

A consumer has the following utility function for good X and good Y 

𝑈 = 4𝑋 + 8𝑌 

The consumer’s income is KShs 12,000, the price of good X is KShs 300 and the price of good Y is KShs 500. 

Required: 

(i) What type of preferences do the two goods represent? Explain  (ii) Compute the marginal rate of substitution of the two goods  (iii) Calculate the corresponding consumer demand functions  

Mary's demand curve for food is Q =10

Her price elasticity of demand for food at price p* equals - 2/3 how much is p*

Note

a Marginal Cost (MC) is the derivative of the total cost (TC) with respect to quantity Q. TC = 300, + 5Q +10Q2 Then MC= 5 + 20Q

Explain the term opportunity cost

Is it true that optimal provision of public good is not possible if social marginal cost is equal to social marginal cost

In Nyeri town there are only two milk processors. The local inverse demand for milk is given by: Q = 120− P, where P denotes price, Q denotes the total quantity measured in cartons. Both milk processors have the same cost function given by C = 30Q, where C is total cost and Q is output measured in cartons. Calculate the profit for each firm

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

 The firm has the production function Q=10L^0.5K^{0 .5}where Q is the hours of edited footage. The wage is $20, and the rental rate of capital is $5. The firm wants to produce 1000 units of output at the lowest possible cost. What is the optimal combination of editing equipment(K) and editors(L) that will minimize cost for Catalina Films?

1.     Suppose that under the United States-Canada Air Quality Agreement, both countries agree to a combined 30 percent SO₂ abatement standard. Further assume that the following SO₂ abatement cost functions have been estimated by each country:

                                              TAC_US = 500 + 1.5(A_US)²

                                              MAC_US = 3 A_US

                                              TAC_CAN = 1000 + 3(A_CAN)²

                                              MAC_CAN = 6 A_CAN

where A_US and A_CAN represent the percent of SO₂ abatement achieved by the United States and Canada, respectively, and each TAC and MAC is measured in millions of dollars.

A.     If the countries implement a uniform abatement standard, find the resulting values of TAC and MAC for each nation. Based on these values, is there an economic incentive the two nations to participate in an emissions trading program? Explain. (10 marks)

B.