Microeconomics Answers

2. The market for fertilizer is perfectly competitive. Firms in the market are producing output but are currently incurring economic losses.

a) How does the price of fertilizer compare to the average total cost, the average variable cost, and the marginal cost of producing fertilizer?

b) Draw two graphs, side by side, illustrating the present situation for the typical firm and for the market.

c) Assuming there is no change in either demand or the firms’ cost curves, explain what will happen in the long run to the price of fertilizer, marginal cost, average total cost, the quantity supplied by each firm, and the total quantity supplied to the market.

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.

(d) Derive the demand curve for good X and demand curve for good Y.

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.

According to the study of the Ministry of

Health the price elasticity of demand of

cigarettes is -0,2. And people purchase about 500 million cigarettes

each year.

a. If the tax on cigarettes were increased enough to raise the

price of cigarettes by 50 percent, what would be the effect

on the quantity cigarettes demanded? Show your work

explicitly.

b. Is raising the tax on cigarettes a more effective way to reduce

smoking, if the demand of cigarettes is elastic or if it is

inelastic? Briefly explain and justify your answer with

diagrams.

Robinson's preferences between apples (a) and bananas (b) are expressed by the following:

U = (a+2)^0.5(b+1)^0.5

(a) Show that Robinson's indifference curves are negatively sloped.

(b) Are they convex to the origin? Explain.

at level of output q up to 600 per day, find out the TVC MC and AC in short run

Following information shows that a firm offering a good at different prices to groups of consumers with different levels of willingness to pay.

Inverse Demand for movies: P1 = 20 – 4Q1

Inverse Demand for students: P2 = 10 – Q2

MC = 4

(a) What price and quantity and maximizes profits if the firm charges each market?

(b) Demonstrate that charging different prices for the two groups results in higher profits than charging the same price for everyone.

(c) Graph the demand curves, the marginal revenue curves, the marginal cost

curve and highlight the equilibrium.

what are examples of trades off

1) What is its unemployment rate?  

2) Now suppose 4,000 of the people looking for work get discouraged and give up their searches. What happens to the unemployment rate?  

3) Would you interpret this as good news for the economy of bad news? Explain.

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

Where ‘P’ is the price in rupees of a renewable energy resources, ‘Qd’ is quantity demanded for renewable energy resources, a ‘Qs’ is quantity supplied for renewable energy resources.

a) Calculate the equilibrium price and equilibrium quantity of renewable energy resources.

b) Calculate price elasticity of supply using point elasticity method when renewable energy sector is in equilibrium. Also, interpret the result

c) What will happen to the equilibrium quantity and equilibrium price of renewable energy resources if energy sector improves the technology? (Graph is not required)

a) Calculate the equilibrium price and equilibrium quantity of renewable energy

resources.

b) Calculate price elasticity of supply using point elasticity method when renewable

energy sector is in equilibrium. Also, interpret the result.

c) What will happen to the equilibrium quantity and equilibrium price of renewable

energy resources if energy sector improves the technology? (Graph is not

required)

Qd = 20,000 - 3P

Qs = 15,000 + 2P