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A consumer's Total Utility Function of two goods X and y are as follows:
TUx=50x-5x²
TUy=32y-4y²
Price of X=Rs.5
Price of y: Rs.8
Consumer income : 120
i) Derive consumer's budget constraint
ii) Derive the marginal utility X
iii) Derive marginal utility Y
iv) Find out the consumer optimum combination of good X and Y at the market.
A city has built a new high-rise car park. There is always an available parking spot, but it costs a1 a day. Before the new high-rise car park was built, it usually took 15 minutes of cruising to find a parking space. Compare the opportunity cost of parking in the new car park with the old parking system. Which is less costly and by how much?
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.
(c) Assuming that the firm is a price-taker operating in a competitive market, derive an expression for the firm’s supply curve, (the profit maximizing output for the firm as a function of the market price, i.e., qS = f(p). Assuming the firm is one of 100 identical firms in the industry, what is the short-run supply curve for the industry, i.e., QS = f(p)? If demand is given by QD = 1000 – 100p, what are the short-run equilibrium price, market quantity, and firm quantity? Is this a long-run equilibrium? [Hint: Calculate firm profit in the equilibrium.]
(d) 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?
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.
- (a) Derive expressions for fixed costs (FC), those that do not vary with output, variable costs (VC), those that do vary with output, average variable cost (AVC), and average total cost (ATC).
- (b) At what quantity is AVC at its minimum (at what AVC level)? At what quantity is ATC at its minimum (at what ATC level)? Calculate ATC at q = 2 and q = 8 and sketch MC, AVC and ATC betweenq=0andq=8.
- True, False, or Uncertain
- Explain why each of the following statements is True, False, or Uncertain according to economic principles. Use diagrams where appropriate. Unsupported answers will receive no marks. It is the explanation that is important.
- A2-1. If a Prof leaves their $100,000 per year job to start a business that earns annual revenue $400,000, and has annual labour and rental costs of $200,000, the economic profit of the business is $200,000.
- A2-2. A decrease in the wage rate will cause a firm’s marginal cost curve to shift down.
- A2-3. For an increase in output, average costs change by more in the short-run than in the long-run, but for a decrease in output, the opposite is true.
- A2-4. If the pandemic causes firms in a competitive industry to spend $100,000 per month on safety measures (regardless of the output level), the firms bear this cost in the short-run, but consumers bear it in the long-run.
Identify and defend the type of price control that can be implemented to avoid the change in equilibrium.
Two goods have a cross-price elasticity of demand of +1.2 (a) would you describe the
goods as substitutes or complements? (b) If the price of one of the goods rises by 5 per
cent, what will happen to the demand for the other good, holding other factors constant?
Three threats that unions experience as a result of globalisation
Suppose the absolute values of the intercept and slope of the demand function
are approximated to be ten (10) and three (3) respectively. If the absolute
values of the intercept and slope of the supply function are assessed to be six (6),
and five (5) respectively, calculate equilibrium price and quantity (4 Marks)
- Suppose the intercept of the demand function increases by two (2), while the
slope remains the same. If the supply function remains the same, estimate the
new equilibrium price and quantity (4 Marks)
- Demonstrate graphically, the effect of the increase in the intercept of the
demand function in (b) above on the equilibrium quantity and price. What
generalization can you come up with from the resulting graphical analysis?
(7 Marks)
A firm’s short-run marginal product of labour function is 3 22 5. 2 MP L L Use indefinite integrals to solve for the total product function.What increase in the total product will be brought about by employing two additional units of labour if five units are currently hired?
