Microeconomics Answers

Formula of MP

Suppose the total-cost function for a firm is given by .C=qw^2/3 v^1/3

a. Use Shephard’s lemma to compute the (constant output) demand functions for inputs l and k.

b. Use your results from part (a) to calculate the underlying production function for q (q as a function of “k” and “l”).

Suppose that a firm’s fixed proportion production function is given by:

q = min{5k, 10l}

Please calculate the firm’s long-run total, average, and marginal cost functions.

There are three industrial firms in Happy Valley.

Firm Initial Pollution Level Cost of Reducing Pollution by 1 Unit

A 30 $20

B 40 $30

C 20 $10

The government wants to reduce pollution to 60 units, so it gives each firm 20 tradable

pollution permits.

a) Who sells permits and how many do they sell? Who buys permits and how many do

they buy? Briefly explain why the sellers and buyers are each willing to do so. What is

the total cost of pollution reduction in this situation?

b) How much higher would the costs of pollution reduction be if the permits could not be

traded?

The demand curve for a public park for two consumers who represent society is given by:

𝑃 = 150 − 𝑄𝐷1, 𝑃 = 250 − 𝑄𝐷2

Graph the two demand curves and show the marginal social benefit curve for this public

park. If the marginal cost of providing the park was €240, what would the optimum

provision of this park be? Explain why any quantity above or below this amount would

represent a less than efficient allocation.

The following graph shows the equilibrium price and quantity in the market for chewing

gum. Suppose the Aragonian government passes a bill to impose a tax of 2 dollars on the production

of chewing gum.

a) What is the new equilibrium price and quantity?

b) What is the amount of tax revenue earned by the government?

c) What is the deadweight loss of this tax?

d) Which is greater: the loss in consumer surplus or the loss in producer surplus?

The following graph shows the equilibrium price and quantity in the market for chewing

gum. Suppose the government passes a bill to impose a tax of 2 dollars on the production

of chewing gum.

a) What is the new equilibrium price and quantity?

b) What is the amount of tax revenue earned by the government?

c) What is the deadweight loss of this tax?

d) Which is greater: the loss in consumer surplus or the loss in producer surplus?

Use demand and supply curves to illustrate and explain why rare items such as the Mona Lisa painting by Leonardo da Vinci are sold at such high prices

Suppose you are given RM500 each month to spend on meals and sports. Each meal will cost you RM5 and each sport will cost you RM2 per time you spend. Explain with a diagram to show that you have achieve an optimum consumption. Carefully derive the bundle of meals and sports at the optimum consumption point and the intercept points in your diagram. Could you able to obtain a higher optimum consumption point if your budget remains at RM500? Explain

Suppose in winters demand of dry fruits increases. Further supply of dry fruit increases due to favorable environmental condition. Explain with the help of demand and supply curve, how price and quantity will respond