Microeconomics Answers

1. With aid of diagrams derive the demand curve of the consumer preference from the total utility graph.
2. Using graphical approach distinguish between Diminishing utility, Marginal Benefits and marginal Cost

n increase in the price of oil is an example of a negative supply shock. Use the AD-AS model graph to explain the effect of a negative supply shock on the price levels and output levels in the economy.

(Note: Five marks will be awarded for the graph and five marks will be awarded for the explanation.)

Explain, with the aid of a graph, the effect of an interest rate decrease on the (7) money market equilibrium.

explain, with the use of a graph, the impact this had on the demand and supply of dollars and the exchange rate in South Africa.

Explain how fiscal policy can be used to encourage economic growth.(4)

• A product has a price elasticity of supply of +3.0. Calculate how much quantity supplied changes if the price falls from $13 to $11.70, while output was originally 5,000 units.

Suppose all bidders’ values are uniform on [0, 1]. Construct a revenue-maximising auction. What is the reserve price?

Suppose the bidders’ values are i.i.d., each according to a uniform distribution on [1, 2]. Construct a revenue-maximising auction for the seller

. In an industry with inverse demand curve p = 100 - 2Q there are four firms, each of which has a constant marginal cost given by MC = 20. If the firms form a profit-maximizing cartel and agree to operate subject to the constraint that each firm will produce the same output level, how much does each firm produce?

2. What is the duopoly Nash-Cournot equilibrium if the market demand function is Q = 1000 - 1000p and each firm’s marginal cost is 28¢ per unit?

The market demand functions in a competitive industry is represented by industry, have identical cost function:

C=Q-Q2+0.5Q3 where C is the cost of a firm and q is the quantity produced by each. Calculate;

i) The output produced by each firm in the long run. (5 Marks)

ii) The longrun equilibrium price. (5 Marks)

iii) The equilibrium number of firms. (5 Marks)

iv) Write short notes on indifferences curves. 

There are 300 identical firms in a perfectly competitive market, the price of the output is p, the short-run cost function of a typical firm in the market is as follows:

 C(q)=q³ - 2q² + 2q+ 10

1. What is this firm’s (short run) average variable cost function?
2. What is this firm’s (short-run) supply function?
3. If p = 17, what is this firm’s maximum profit?
4. If p = 17, what is this firm’s producer surplus?
5. What is the short-run market supply function?
6. If the market demand function is D = 500- 50 √3p-2, what is the short-run market equilibrium price and market equilibrium output quantity?
7. What is the output level and the profit of a typical firm at the market equilibrium from (g)?