Microeconomics Answers

Use a graph and indicate the production of 1000 units of output at minimum cost.

Consider the market for minivans. For each of the events listed here, identify which of the determinants of demand or supply are affected. Also indicate whether demand or supply increase or decrease. Then draw a diagram to show the effect on the price and quantity of minivans.

a.People decide to have more children

b.A strike by steelworkers raises steel price

c.Engineers develop new automated machinery for the production of minivans

d.The price of sports utility vehicles rises

e.A stock-market crash lowers people's wealth

Using supply-and-demand diagrams, show the effect of the following events on the market for sweatshirts.

a) A hurricane in South Carolina damages the cotton crop

b) The price of leather jackets falls

c) All colleges require morning exercise in appropriate attire

d) New knitting machines are invented

1. Demand for grain is given by function Qd=9-4P and supply - by function Qs=2P. The government also entered the market and bought 6 units of the grain. Which equilibrium price will be established in this market and how much grain will be sold?

2. Price elasticity of demand and income elasticity of demand are accordingly -0,4 and 1,1. The changes in price and income accordingly amounted to 12% and -5%. Find the percentage change in quantity demanded.

3. Price elasticity of demand, last sale, last price, and initial price accordingly are -1,5; 20; 10; 40. Find the initial sale.

Singer Britney Spears has a monopoly over a scarce resource: herself. She is the only person who

can produce a Britney Spears concert. Does this fact imply that the Government should regulate the

prices of her concerts? Why? Or why not?

With the onset of dengue in prolonged rainy season in Ahmedabad, there is high demand for

fogging (spraying mosquito repellents). The demand and supply of mosquito repellent spray is

given in the table below. Suppose there is an external benefit of Rs. 200 per spray of mosquito

repellent.

How much spraying would take place in the market? What is the efficient level of spraying? Discuss

ways to achieve the efficient level of spraying.

Price

(In Rs.

/Spraying)

Demand for mosquito

Repellent

Supply of mosquito

repellent

800 2 14

700 4 12

600 6 10

500 8 8

400 10 6

300 12 4

200 14 2

using supply-and-demand diagrams, show the effect of the following events on the market for sweatshirts.

a)A hurricane in South Carolina damages the cotton crop

b)The price of leather jackets falls

c)All colleges require morning exercise in appropriate attire

d)New knitting machines are invented

Two pharma companies, namely Zydus and Torrent pollute the Sabarmati River. They each dump

100 tons of carbon mixed water into the river. The cost of reducing production of carbon mixed

water for Zydus is Rs. 100 per ton, whereas Torrent will have to spend Rs. 1000 per ton of carbon

mixed water to reduce pollution. The Ahmedabad Municipal Corporation wants to reduce carbon

mixed water generation to 50 tons, from the current 200 tons.

(i) If AMC knew their costs of reduction for each company, what reductions would it impose to reach

its overall goal? What would be the cost to each company, and what would be the total cost to the

companies together?

) For each city across Canada, economists construct a price index for a similar basket of goods. In Edmonton (AB) the index is 132.00, and in Thunder Bay (ON) the index is 122.40. If you have been offered $130,000 for a job in Edmonton and $105,000 for a similar job in Thunder Bay, which job offers you the highest purchasing power for the bundle of goods in the price index? Use the Edmonton value as the base.

Suppose a firm operating in a perfectly competitive industry has costs in the short run given by:

SRTC = 8 + 1/2Q^2 and therefore MC = q.

If the minimum point of the short-run ATC curve for all firms(existing and potential)is also the minimum point of the long-run average cost curve (LRAC), calculate the long-run equilibrium price, market quantity, and firm quantity. What is the long-run equilibrium number of firms in the industry?