Microeconomics Answers

State whether you agree or disagree with the following statements. Give

reasons in support of your answers.

a. A competitive firm will shut down its operations in the short run if it earns losses.

b. The expansion path for a Leontiff production function is linear.

c. If a production function has constant elasticity of substitution (CES), its positive

monotonic transformation will also have CES.

d. A production function that exhibits diminishing marginal returns to inputs, necessarily

has decreasing returns to scale also

Public goods and common resources: define them and explain how their

production and use is affected by the allocation of property rights.

The short run supply curve of a company selling its goods on a competitive

market: explain how imposing some assumptions on the firm’s objectives

and on the costs’ behaviour economists derive a relationship between the

price level and the quantity of goods that a firm supplies.

Consumer surplus: define it and explain how economists derive the

concept of consumer surplus imposing some assumptions on the

consumer’s preferences and on its behaviour when choosing the allocation

of limited resources.

1.     Complete the following table.

(i)    Find out the total product (TP), average product (AP), marginal product (MP) and draw a graph of TP, AP, MP and also explain the stage of production.

(ii) if the fixed price of land is 1000 and the firm pays 750 to each worker then calculate, Fixed cost, variable Cost, Marginal Cost, Average Variable Cost (AVC), Average Fixed Cost(AFC), and Average total cost(ATC).

Labor

Total Product

Average Product

Marginal Product

Average Fixed Cost

Average Variable Cost

Average Total Cost

0

0

1

8

2

18

3

25

4

30

5

33

6

34

4 ) Complete the following table.

i ) Find out the total product (TP), average product (AP), marginal product (MP) and draw a graph of TP, AP, MP and also explain the stage of production.

ii ) if the fixed price of land is 1000 and firm pay 750 to each worker then calculate, Fixed cost, variable Cost, Marginal Cost, Average variable Cost (AVC), Average Fixed Cost(AFC), and Average total cost(ATC).

Consider a market in which Bert from problem 4 is the buyer and Ernie from problem 5 is the seller. a. Use Ernie’s supply schedule and Bert’s demand schedule to find the quantity supplied and quantity demanded at prices of $2, $4, and $6. Which of these prices brings supply and demand into equilibrium? b. What are consumer surplus, producer surplus, and total surplus in this equilibrium? c. If Ernie produced and Bert consumed one fewer bottle of water, what would happen to total surplus? d. If Ernie produced and Bert consumed one additional bottle of water, what would happen to total surplus?

Suppose that the price of commodity Y is $1 per unit while the price of commodity X is $2 per unit and suppose that an individual’s money income is $16 per time period and is all spent on X and Y. (a) Draw the budget constraint line for this consumer and (b) explain the reason for the shape and the properties of the budget constraint line in part (a).

3) Draw indifferences curves to represent each of the following type of preferences.

i) A customer is always pleased to change 5 sweet candy for 1 chochlate bar.

ii) A customer always desires 2 glasses to wear with 1 frame.

Define the following

1 ) Perfect Competition

2 ) Monopoly

3 ) Monopolistic Competition

4 ) Oil GoPoLY