Microeconomics Answers

The demand function for Product X is given by:

Qdx = 10 + 0.06I - 2Px - 0.5Py + 0.7Pz

where

Px Price of good X $9.00

Py Price of related good Y $4.00

Pz Price of related good Z $10.00

I Income $250.00

a. (i) Calculate the own Price elasticity of demand (PED) for Good X.

(ii) Illustrate on a well labelled demand curve graph for Product X, the Total Revenue

earned when the Price of good X is equal to $9.00. This graph should be labeled

‘Graph 1: Total Revenue of Product X at price $9.00.’

(iii) Illustrate on another well labelled diagram, the area of Consumer surplus for Product X

when the price of good X is $9.00. This graph should be entitled ‘Graph 2: Consumer

Surplus of Product X.’

(iv) What is the value of the consumer surplus?

Use diagrams to illustrate each of the following:

(i) the equilibrium of a consumer (consumer satisfaction or utility is

maximized) using indifference theory

(ii) how the demand curve for one product is derived for a consumer using her

indifference map.

The Southern Mail produces local newspapers. The company can rent its equipment and hire workers at competitive rates. Equipment needed for this operation can be rented at R4 per hour, and labour can be hired at R3 per worker hour. The production function using available technology can be expressed as: Q = 2L0.5 K 0.5 [8] a) Determine the firm's optimal ratio of labour to capital. b) Determine the cost-minimizing level of capital and labour in the long run if the firm wants to produce 160 units. Calculate the cost. c) Graphically illustrate this using isoquant and isocost lines.

The Southern Mail produces local newspapers. The company can rent its equipment and hire workers at competitive rates. Equipment needed for this operation can be rented at R52 per hour, and labour can be hired at R12 per worker hour. The company has allocated R150,000 for the initial run of newpapers. The production function using available technology can be expressed as: Q = 0.25K0.25 L0.75 [8]

a. Construct the isocost equation.

b. Determine the combination of labour and capital to get the greatest output for an outlay of R150,000 for an initial run of newspapers. Determine the level of output.

c. Graphically illustrate this using isoquant and isocost lines.

Mondi Company produces party boxes that are sold in bundles of 1000 boxes. The market is highly competitive, with boxes currently selling for R100 per thousand. The company has a total and marginal cost curve given by:

TC = 3,000,000 + 0.001Q2

MC = 0.002Q

Q is measured in thousand box bundles per year. [5]

a. Determine Mondi's profit maximizing quantity.

b. Calculate if the firm is earning a profit or a loss?

c. Based on the analysis above, should Mondi Company operate or shut down in the shortrun?

If Boeing produces 9 jets per month, its long-run total cost is $9.0 million per month. If it produces 10 jets per month, its long-run total cost is $9.5 million per month. Does Boeing exhibit economies or diseconomies of scale?

A firm has two plants that produce identical output. The cost functions are C₁ =10q-4q² +q³. a.At what output level does the average cost curve of each plant reach its minimum? b. If the firm wants to produce four units of output,how much should it produce in each plant?