Microeconomics Answers

 What is the formula for measuring the price elasticity of supply? Suppose the price of apples goes up from $20 to $22 a box. In direct response, Goldsboro Farms supplies 1,200 boxes of apples instead of 1,000 boxes. Compute the coefficient of price elasticity (midpoint approach) for Goldsboro’s supply. Is its supply elastic, or is it inelastic?

With the aid of a diagram explain an oligopoly kinked demand curve

The table below summarises the parameters of the problems.

Hours per Unit

Department Chairs Desks Tables Hours

Available

Fabrication 4 6 2 1,850

Assembly 3 5 7 2,400

Shipping 3 2 4 1,500

Demand

Potential 360 300 100

Profit $15 $24 $18

Q1: Using a spreadsheet model, determine the optimal solution that will generate

maximum profits from current production. [10 marks]

Q2: From your answers in (ii), you realise that fabrication time limits your ability to

increase profits. Maybe we should acquire more of it. How much should we pay for

additional time? [10 marks]

Abridge will cost P5m to build and P200 000.00 per year to maintain. The life span of the bridge is forty years, Benefits to the driving public is P900 000.00 per year. Damage costs associated with noise pollution are estimated at P250 000.00 per year.

i)Given market interest rates at four percent (4%) calculate the present value/present worth of the benefits of the bridge. (3 marks)

ii)Calculate the present value/worth of the cost of the bridge. (3 marks)

iii)Would you recommend the construction of the bridge or not? Explain your reasoning.(3 marks)

iv) if the interest rate is increased to 11% how does that affect the present values? (2 marks

Suppose the market demand curve for a good is Qd=1000-10p and the market supply curve is given by Qs=100+20p required; calculate the equilibrium price and the equilibrium quantity

1.    Suppose the market demand curve for a good is Qd=1000-10p and the market supply curve is given by Qs=100+20p required.

i)            Calculate the equilibrium price.                             (4 Marks)

ii)          Calculate the equilibrium quantity.                        (2 Marks)

iii)        Illustrate the concept of market equilibrium.          (4 Marks)

If Veronica Vaughn spends all of her daily income on cigarettes and Yoo Hoo, she can afford 10 packs of cigarettes and 10 bottles of Yoo Hoo. She can also afford 6 packs of cigarettes and 22 bottles of Yoo Hoo.

Now suppose the price of cigarettes falls by $1 and the price of YooHoo roses by $1. If Veronica was consuming 5 packs of cigarettes and 30 bottles of Yoo Hoo prior to the price changes, how much must her income rise under the new prices in order for her to just afford the old bundle, (5,30)?

Distinguish between substitutes and complements using cross elasticity coefficients

b. If households spend $55 billion on goods and $45 billion on

services, how much in revenues do businesses receive in the

product market?

If Veronica Vaughn spends all of her daily income on cigarettes and Yoo Hoo, she can afford 10 packs of cigarettes and 10 bottles of Yoo Hoo. She can also afford 6 packs of cigarettes and 22 bottles of Yoo Hoo.

Now suppose the price of cigarettes falls by $1 and the price of YooHoo roses by $1. If Veronica was consuming 5 packs of cigarettes and 30 bottles of Yoo Hoo prior to the price changes, how much must her income rise under the new prices in order for her to just afford the old bundle, (5,30)?