Microeconomics Answers

Given the utility function of an individual, U(W) = 20𝑊, where W stands for wealth.

Comment upon the Risk Aversion of such an individual with the help of a diagram.

(b) Now, let the initial wealth of the individual mentioned above be Rs 400. Suppose this

individual runs a factory, the chances of which catching fire is 1/5. The damage that will be

caused by such fire is estimated to be Rs 300.

(i) What is the expected loss due to the fire?

(ii) What is the expected utility of the individual?

(iii) If the insurance company asks for a premium of Rs 61, would he pay for it?

Describe some of the tradeoffs faced by the following: 

a. a family deciding whether to buy a new car

b. a member of Parliament deciding how much to spend on national parks c. a company president deciding whether to open a new factory

d. a professor deciding how much to prepare for class 

Q1. Which factor formula is applied to calculate annual equivalent worth ?

(i) Equal payment series present worth amount

(ii) Equal payment series compound amount

(iii) Equal payment series capital recovery amount

(iv) None of these

Q2. Which formula is applied to calculate internal rate of return ?

(i) Present worth analysis

(ii) Future worth analysis

(iii) Annual equivalent worth analysis

(iv) None of these

Q3. What is the difference between value and worth ?

(i) value is present and worth is intrinsic amount

(ii) value is the present amount and worth is value with impact of interest rate

Q4. A public investment proposal is accepted when

(i) B : C ratio is = 0

(ii) B : C ratio is > 0

(iii) B : C ratio is < 0

(iv) None of these

Q5. An investment proposal is accepted when

(i) Present worth = 0

(ii) Present worth > 0

(iii) Present worth < 0

(iv) None of these

Q6. An investment proposal is accepted when

(i) Internal rate of return (IRR) >= Minimum acceptable rate of return (MARR)

(ii) Present worth > 0

(iii) Future worth < 0

(iv) None of these

Q1. Future worth of an investment proposal means

(i) Future value of principal investment

(ii) Salvage value

(iii) Net of future value of investment return

(iv) Effective interest rate

Q2. B : C is calculated to evaluate what ?

(i) A mutually exclusive investment proposal

(ii) An independent investment proposal

(iii) A start up

(iv) A public investment proposal

Q3. Which factor amount formula is applied to compute present worth analysis ?

(i) Equal payment series compound amount

(ii) Equal payment series present worth amount

(iii) Equal payment series capital recovery amount

(iv) Equal payment series sinking fund factor amount

Q4. Which factor formula is applied to calculate future worth ?

(i) Equal payment series compound amount

(ii) Equal payment series present worth amount

(iii) Equal payment series sinking fund factor amount

(iv) None of these

Q1. An effective interest rate is

(i) Market interest rate 

(ii) Expected change in interest rate

(iii) Nominal interest rate defaulted by inflation

(iv) None of these

Q2. Annual equivalent worth is

(i) Annual equivalent cost

(ii) Annual equivalent amount

(iii) Net of annual equivalent worth of investment and annual equivalent worth of revenue

(iv) None of these

Q3. Internal rate of return is

(i) the nominal interest rate

(ii) the interest rate at which present worth > 0

(iii) the interest rate at which present worth < 0

(iv) the interest rate at which present worth = 0

Q4. A mutually exclusive investment proposal means

(i) A set of equal return proposal

(ii) A set of equal principal investment proposal

(iii) A set of equal life proposal

(iv) None of these

Q5. Present worth of an investment proposal means

(i) Principal investment

(ii) Annual return

(iii) Net of present worth of investment and present worth of return

(iv) Nominal interest rate

Given utility function U=144q-1.5qsquared

Find marginal utility

Calculate the utility maximising quantity

What is marginal rate of substitution

Given a demand function of the monopolist as Q=50-0.5P and cost function of the nature C=50-4Q.

1. Calculate profit maximising output

2. Calculate the price at which profit is maximised

3. Compute the total profit

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.

(8)

explain the relationship between elasticity and revenue

following equations respectively:

Demand: P= 1400 - 2Qd

Supply: P = 200 + 10sI

1.1

Calculate the equilibrium price and quantity of shoes.

1.2

Assume that the price of shoes is R700. Use your answer in 1.1 to exp

the resulting situation in the market for shoes, and how equilibrium

be restored without government intervention, ceteris paribus.