Microeconomics Answers

The output of a brick maker can be determined by the following production function:

B=K0.75L0.25

Where:

B =number of bricks produced in a given period

L= amount of labour employed

K= amount of capital employed.

If the price of capital is PK, the price of labour is PL and the firm’s total expenditure is E,

i.State the firm’s optimization problem.

ii.Set up the Lagrangian function based on the information provided.

iii.Obtain the first order conditions for optimization.

iv.Derive the optimum combination of inputs.

v.If the price of capital is P20, the price of labour is P30 and the brick maker’s total expenditure on inputs in P120, calculate the firm’s output maximizing input combination.

vi.How may bricks will the brick layer produce in a given period?

Use the production possibility curve (PPC) to answer the question. If Zambia is currently on PPC1,

then point-------------will be an efficient use of resources, while point------------will be unattainable.

In microeconomics, we expect the supply curve for the firm to slope upward to the

right when drawn against price. The classical aggregate supply curve is based on

this microeconomic theory of the firm but is vertical. Why?

A competitive firm has the short-run cost function C(y) = 12y3  - 8y2+30y+12. At what price will the firm agree to produce in the short-run? What is the shutdown condition for this firm?

Suppose the GDP per capita (income) has increased from $5000 to $10,000, whereas the demand for luxury apartments has increased from 1000 to 2000, whereas the demand for burgers has increased from 10,000 to 12,000. Calculate the income elasticity of demand for apartments and burgers

a. Mention any 5 concepts used interchangeably with:

i. Lending rate. (5)

ii. Strict monetary policy (5)

iii. Accommodative monetary policy (5)

b. Mention the types of inequality that were seen most during the period of hard lockdown in South Africa

1.      An individual seller’s monthly supply of downloadable e-books is given by the equation

Q^seb = −6.45 3.7Peb – 7.5W

where Q^seb is number of e-books supplied, Peb is the price of e-books in euros, and W is the wage rate in euros paid by e-book sellers to laborers. Assume that the price of e-books is €10.68 and wage is €10. The supply side of the market consists of a total of eight identical sellers in this competitive market.

a.      Determine the market aggregate supply function.

b.     Determine the inverse market supply function.

Determine the slope of the aggregate market supply curve.

1.      An individual seller’s monthly supply of downloadable e-books is given by the equation

Q^seb = −6.45 3.7Peb – 7.5W

where Q^seb is number of e-books supplied each month, Peb is price of e-books in euros, and W is the hourly wage rate in euros paid by e-book sellers to workers. Assume that the price of e-books is €10.68 and the hourly wage is €10.

a.      Determine the number of e-books supplied each month.

b.     Determine the inverse supply function for an individual seller.

c.      Determine the slope of the supply curve for e-books.

Determine the new vertical intercept of the individual e-book supply curve if the hourly wage were to rise to €15 from €10.

Assume a firm is a small business and act as a price-taker in the market, the market price of the firm’s product is 20. The firm’s cost function is:

C(q) = 0.5q²+5q+100.

1. What is the firm’s optimal output level?

2. What’s the firm’s highest profit?

Assume a firm is facing the market demand curve: q = 100-2p, its total cost function is: c(q) = 2q²

1. What is the firm’s marginal revenue?

2. What is the firm’s marginal cost?

3. What is the output level “q” when the firm is maximizing its profit?

4. What is the firm’s maximum profit?