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A firm estimated its AC curve last year and found that
AC = 1000 – 0.05 Q. This year it estimated its ACs and found that they were
AC = 900 – 0.05 Q
Are there increasing or decreasing returns to scale?
Q = - 50 + 10 L – 0.02 L2
1) Find out MP
2) Find out AP
3) At what level of labor input does the AP curve reach its maximum? What is the MP at this input level?
1. Suppose you are considering growing and selling maize and you are operating within a competitive market with no influence over price. Assume the current price of maize K70 per 100 kg and the short run cost function, where Q represents bags of maize per year is:
TC = 800 + 16Q + Q2
a) What is the profit maximizing output?
b) Calculate the profit for the output you got in (a) above?
c) Based on the rule that a firm should produce only if it covers its variable costs of production, what quantity should be produced to cover variable costs?
d) How much are the fixed costs of this business?
Draw a production possibility frontier with paddy on the horizontal axis and
maize on the vertical axis illustrating these options, showing points A–F.
Suppose that the U.S. government reduces the tariff on imported coffee, and a reputable study is published indicating that coffee drinkers have lower rates of colon cancer. What will the combined impact be on the equilibrium price and quantity of coffee? Explain your reasoning and show graphically. Make sure you think this through carefully!
WITH PRACTICAL EXAMPLES, STATE AND BRIEFLY EXPLAIN THE FOUR FACTORS OF PRODUCTION
Explain how an increase in the price of organic onions can affect the supply of organic tomatoes that use the same land to grow. How will this affect the equilibrium price and quantity of organic tomatoes?
Using the following graph, show what happens to consumer surplus when a new technology reduces the cost of production
Suppose, the government has decided that the free-market price of sugar is too low. Government has imposed a binding price floor of per kg sugar at 60 taka, whereas, the market price was 50 taka per kg before the announcement.
a. Explain the effects of this flooring price on the demand and supply of the sugar market. In your graph, show the effects of the price changes on quantity demanded and quantity supplied. Does it create excess supply or excess demand? What will happen to the market price?
b. In the above situation, who (buyers or sellers) is going to get the benefit from such policy? Explain it in your own words (clue: use a graph where a Price flooring is binding).
Assume you are the Minister of Finance and need to raise revenue by choosing to tax a specific good, such as cigarettes or jewellery. Suppose that cigarettes have an inelastic demand, while jewellery has an elastic demand. Based on their elasticity, would you tax jewellery or cigarettes?
