Microeconomics Answers

Stuart's utility function for goods X and Y is represented as U(X,Y)=X0.8Y0.2. Assume that his income is $100 and the prices of goods X and Y are $20 and $10, respectively.

Now a government subsidy program lowers the price of X from $20 per unit to $10 per unit.

(e) Calculate and graphically show the change in good X consumption resulting from the program.

(f) Graphically show the change in consumption attributable to the separate income and substitution effects.

(g) Show (graphically) how much the program cost the government.

1. What is production

2. What is a production function

3. Define the following terms

(a) Average product (b) marginal product ( c) total product

4. Distinguish between short run and long run

5. Distinguish between increasing returns to scale, constant returns to scale, and

decreasing returns to scale?

6. Determine whether the following functions exhibit increasing returns, constant returns

and decreasing returns to scale and determine the degree of homegeneity

i. Q = 200 𝐾0.4𝐿0.6

ii. Q = 200 + 2K +4L

iii. Q = LK -0.8K2 -0.2L2

Qd = 20,000 - 3P Qs = 15,000 + 2P

calculate the equilibrium price and quantity

The price of matchboxes doubles from Rs.4 to Rs.6, but the quantity purchased does not change. d) A price change causes the quantity demanded of a good to decrease by 30 percent, while the total revenue of that good increases by 15 percent. Is the demand curve elastic or inelastic?

n each of the following snerios, categories the price elasticity of demand as either elastic, inelastic or unit elastic.(use mid point method in calculation)

a) The price of personal computers falls from $2750 to $2250 and the quantity demanded increases from 40,000 to 60,000

b) Pakistan posts increases the price of stamp for Rs.2 cents to Rs 4,but it's total revenue unchanged

Assume that a firm has a plant of fixed size and that it can vary its output only by varying the amount of labor it employs. The table below shows the relationships between the amount of labor employed, the output of the firm, the marginal product of labor and the average product of labor

Compare and contrast marginal rate of substitution and marginal rate

technical substitution.

Demand Curve: There is typhoon. What is the effect to the umbrella?

Price elasticity of supply by point elasticity method when energy sector is in equilibrium

XTC Ltd has total costs of $45,000 and it is currently producing 5,000 units. It has examined its cost structure and has found that its variable costs share a linear relationship with output. Fixed costs are $10,000. The market price is $10.

(a) Determine the MC, AVC and ATC functions (write down the equation) for the firm.

(b) Determine the current profit of the company.

c. Determine the degree of operating leverage at current output