Microeconomics Answers

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?

Two small airlines provide shuttle service between Las Vegas and Reno.  The services are alike in every respect except that Fly Right bought its airplane for $500,000, while Fly by Night rents its plane for $30,000 a year.  If Fly Right were to go out of business, it would be able to rent its plane to another airline for $30,000.  Which airline has the lower costs

Suppose a firm finds that the marginal product of capital is 60 and the marginal product of labor is 20. If the price of capital is $6 and the price of labor is $2.50, describe how the firm should adjust its mix of capital and labor? What will be the result?

1.     Find the price elasticity of supply at price of Birr 8 if the supply function is:

Q = 25 – 4P + P²

What is elasticity at Birr 4 and at Birr 5? Interpret the result.

1.     A consumer has 280 to spend on two commodities, the first of which costs 2 per unit and the second 5 per unit. Suppose that the utility derived by the consumer from x units of the first commodity and y units of the second commodity is given by the  Cobb-Douglas utility functions as: U(x,y)=100 x^0.25 y^0.75

a)   How many units of each commodity should the consumer buy to maximize utility?

b)   Compute the Lagrange multiplier  and interpret in economic terms?

1. Find the MU_x , MU_y , and MRS equations for each of the following utility functions. Which of the below utility functions exhibit diminishing MRS? (That is, which of the below yield convex indifference curves?).

a.      U = x^0.6y^0.4.

b.     U = x² + y²       x,y>0.

c.      U = 2x + 4y.

d.     U = x²y².

e.      U = x^ay^b

A consumer is in equilibrium at point A in the accompanying figure. The price 

of good X is $5. a. What is the price of good Y? b. What is the consumer's income? c. At point A, how many units of good X does the consumer purchase? d. Suppose the budget line changes so that the consumer achieves a new equilibrium at point B. What change in the economic environment led to this new equilibrium? Is the consumer better off or worse off as a result of the price change? 

Why is it important for a country to be apprised of its national income?