Microeconomics Answers

1)  The price has just increased from $1.50 to $3. Calculate the price elasticity of demand at $1.50. Round your answer to 2 decimal places if necessary.

2)   At a price of $1.50 is price elasticity of demand elastic, unit elastic or inelastic? Explain your answer.

3)   Calculate the total expenditure on lattes at price $1.50 per latte.

Can you do a demand graph for this ty

Price QD

20 200

25 150

30 100

35 50

40 0

A firm has has two plants that produce identical output. The cost functions are C₁=10Q-4Q² +Q³ and C₂=10Q-2Q² +Q³.

1.At what output level does the average cost curve curve of each plant reach its minimum?

1. If the firm whats to produce four units of output,how much should it produce in each plant?

A firm's cost curve is C=F+10q-bq²+q³,where b>0. 1.For what value of b are cost,average cst,and average variable cost positive?( From now on, assume that all these measures of cost are postive at every output level.)

2.What is the shape of the AC curve At what output level is the AC minimized?

3.At what output levels does the MC curve cross the AC and the AVC curves?

4. Use calculus to show that the MC curve must cross the AVC at its minimum point.

3) Assuming that firms compete a la Cournot, that all firms have the same marginal cost, and

that demand is linear, when is price most sensitive to changes in marginal cost: in a market

with very few firms or in a market with many firms? Show this formally. [Hint: assume

demand 𝑝 = 𝑎 – 𝑏𝑄]

b) Consider a Bertrand duopoly with differentiated products. Demand curves are given by

𝑝1 = 600 − 2𝑞1 − 𝑞2

𝑝2 = 600 − 𝑞1 − 2𝑞2

Suppose that the cost functions are given by (𝑞i) = 60𝑞i , for 𝑖 = 1, 2. Find the equilibrium

outputs, the prices and the profits.

Three pirates (in order of seniority A, B, C) find a treasure chest containing 100 (indivisible)

coins. They have the following rules regarding the distribution of treasure. The most senior

pirate on the ship proposes a plan of how to distribute the coins, and everyone takes a vote on

the plan. If there are at least as many votes in favor as against, the vote passes and distribution

is done accordingly. If the majority votes against, the proposer is thrown overboard, after

which the now most senior pirate makes a proposal. Pirates prefer more coins to less. If a

pirate is indifferent between voting for or against in terms of coins, he prefers throwing the

proposer overboard. Find the sub-game perfect Nash equilibrium of this game. Hint: use

backward induction and read carefully.

Assume in a two-sector economy made up of agriculture and manufacturing, the government introduces a subsidy of y per hour on labour in the manufacturing sector. What will be the effect of the policy on the equilibrium wage, total employment as well as employment in agriculture and manufacturing?

Give the formulas for and plot AFC,MC,AVC and AC if the cost function is: A. c=10+10Q, B. C=10+q2, C. C=10+10q-4q²+q3.

In our labour market model, the aggregate nominal wage depends on