Microeconomics Answers

1. Assume that price of good X (Px2) will become P5.00 per unit while B1 and Py1 remain the same. What is the new combination of goods X and Y the consumer should purchase in order to be at equilibrium?

1. Suppose the consumer’s budget (B1) is P50.00 and the price per unit of Good X (Px1) is P10.00 and the price per unit of Good Y (Py1) is P5.00. How many units of goods X and Y the consumer should buy in order to be an equilibrium? How many will be the consumer’s total utility from this combination of goods X and Y?

Why is it the case in a long-run monopolistically competitive equilibrium that the firm’s demand curve is tangent to its average cost curve? Why could it not be a long-run equilibrium if the demand curve “cut through” the average cost curve? 

A perfectly competitive firm is referred to as a

An increase in supply indicates that

a) more is supplied at higher prices

b) indicates that more is supplied at lower prices

c) indicates that more is supplied at all prices

d) is illustrated by an upward shift of the supply curve

Explain using AS-AD model how the output eventually returns to the natural level in the medium-run, in response to a contractionary monetary policy.

Suppose, there is a rise in money demand for every level of income and interest rate. How will this affect the LM and the aggregate demand curve, if at all? Explain.

Explain the effects of increase in Govt. budget deficit on output, the interest rate, and the price level in short-run and in medium run model. in AD-AS

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 LKR /ticket

(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. 

the fundamental purpose of production is