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Kali lives on mangoes and avocados, Pm = $5, Pa = $10, and her income is $200.
A. Identify her budget constraint equation and illustrate Kali’s budget line on a graph
with mangoes on the horizontal axis and avocados on the vertical axis. (6 marks)
B. Identify and illustrate on a new graph Kali’s new budget constraint if her income
doubled, the price of mangoes doubled, and the price of avocados remained constant.
(7 marks)
C. Explain the impact on her real income when the price changed in the scenario in B
assuming income had remained constant.
consider an agent whose preference cover any couple (x1,x2) , where x1 E R+ and x2E R+.e.g ..apples and oranges , is such that she prefers the bundle that is close to having the same number of apples and oranges . write a utility function
A consumer has a demand function for rice of the form:
X = 3 + m/2p
Assume that his/her income per month that is allocated to consumption of rice in a month is kshs 600/-The price of one kg of rice is kshs 100/-. During harvesting, the price of rice falls by shs 25 per kg.
Compute the consumption of rice by the consumer in a month before and after the fall in price.
Compute the Substitution Effect on the consumer
Compute the Income Effect
What is the total effect of the price change?
A consumer is faced with the Utility function of the form:
U(x,y) = αLogx + βLogy
If this Utility function is represented by a map of indifference curves, find the slope of a particular indifference curve at any point.
The market for commodity X is described by the following demand and supply curves.
2
Q(p) = 25 – P ………………(1)
Q(p) = -3 + 3P ………………(2)
(a) Which of the two curves is the demand curve and which is the supply curve? How did you know?
(b) Graph both curves (on the same graph)and find the equilibrium price and the equilibrium quantity transacted.
(c) Solve algebraically for the equilibrium values in part (b).
(d) Find the price elasticity of demand at equilibrium and interpret your result.
A monopoly firm faces a demand curve given by the following equation: P = $500 − 10Q, where Q
equals quantity sold per day. Its marginal cost curve is MC = $100 per day. Assume that the firm faces
no fixed cost. You may wish to arrive at the answers mathematically, or by using a graph (the graph is
not required to be presented), either way, please provide a brief description of how you arrived at your
results.
A firm’s production can be described with the following production function q = 6L2 -L3 + 20L, the amount of capital is fixed at 3 units and the total revenues are given by TR = 5q. Labour supply that the firm faces is given by the function w = 100.
• Decide whether the company is a perfect or imperfect competitor in the output market.
• Decide whether the company is a perfect or imperfect competitor in the labour market.
• Express the function MRPL , ARPL , MFCL , and AFCL .
• Determine how employees the firm is willing to employ. Next, determine the wage rate that the firm will pay for each unit of labour.
Many governments directly regulate monopolies, especially those created by the government, such as public utilities (for example, water, natural gas, or electricity distribution), to reduce monopolies' mar ket power. If the marginal cost of production for a monopoly is constant, there are no fixed costs and the market demand curve is linear, draw a graph indicating the socially optimal amount of regulation. Now suppose the government sets a price ceiling that is above the socially optimal level, but below the monopoly's profit-maximizing price. How do the price, quantity, and welfare under this regulation compare to those under optimal regulation?
1. Can a firm be a natural monopoly if it has a U-shaped average cost curve? Why or why not?
2. Can a firm operating in the upward-sloping portion of its average cost curve be a natural monopoly? Explain.
3. In the Application "The Botox Patent Monopoly," what would happen to the equilibrium price and quantity if the government had collected a specific tax of $75 per vial of Botox? What welfare effects would such a tax have?
Consider the inverse demand curve p = 144 - 20 and the cost function C(Q) = 100+ 4Q. If the market were competitive, calculate the incidence of a specific tax, t = 6, that falls on consumers. Calculate the incidence of the same tax if the market were instead a monopoly.
Draw an example of a monopoly with a linear demand curve and a constant marginal cost curve. a. Show the profit-maximizing price and output, p* and Q*, and identify the areas of consumer surplus, producer surplus, and deadweight loss. Also show the quantity, Q, that would be pro duced if the monopoly were to act like a price taker.. b. Now suppose that the demand curve is a smooth concave-to-the-origin curve (which hits both axes) that is tangent to the original demand curve at the point (Q, p"). Explain why this monopoly equilibrium is the same as with the linear demand curve. Show how much output the firm would pro duce if it acted like a price taker. Show how the welfare areas change. c. How would your answer in part a change if the demand curve is a smooth convex-to-the-origin curve (which hits both axes) that is tangent to the original demand curve at the point (Q", p*)?
