Microeconomics Answers

A firm producing hockey sticks has a production function given by

q=2√kl

The price of labor is “w”, the price of capital is “v”. For any given level of output “q”:

1. Calculate the firm’s long-run total, average and marginal cost function.

2. Please show the cost function is homogeneous of degree 1 in input prices.

3. Please show the cost function is concave in v.

Suppose now that capital used for producing hockey sticks is fixed at “k1” in the short run.

4. Calculate the firm’s short-run total costs as a function of q, w, v, and k1.

. This has been caused mainly by rising prices of domestically- produced goods and services. The government is considering a change in its economic policy to deal with this problem. The proposed policy change would provide a monthly cash transfer of $500 to all individuals in employment who are making $3000 or less each month. The government estimates that 35% of the working population. The government intends to pay for this cash transfer to low-income individuals by imposing a 2% tax on all imported goods and services. does not intend to change its sales tax, which applies to all goods and services consumed, whether domestically-produced or imported. the government recognizes that many firms use both domestic goods and services as inputs into their production processes. The government is concerned that there might be an increase in unemployment due to rising prices. The central bank is considering whether it should raise or lower interest rates, which affects the cost of capital as a factor of production

3.1 Use a graph to explain the effect of an imposition by the government of a maximum price in the face mask market. (7)

3.2 Briefly describe any four (4) factors that could result in a product having an inelastic demand.

Given a cobb – Douglas production functionQ = L0.5 K0.4And the prices of capital and labour are ksh3 and ksh 4 respectively while the firm outlay is Kshs.108, calculate the optimal combination of factors inputs.

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?