Microeconomics Answers

The consumer has set a budget of $M for the consumer of good X and Y .The price of good X is $Px and the price of good Y is $py.The consumer has a utility function given by U(X,Y)=xy^2.
Find the optimal consumtpion choice of the individual and the ulitlity obtained.
Make a graph that illustrates the solution to the problem.

Explain each of the following statements using supply-

and-demand diagrams.

a. When a cyclone hits Queensland, the price of

bananas rises in supermarkets throughout the

country.

b. When school holidays end, the price of picture

tickets plummets.

c. When a war breaks out in the Middle East, the price

of petrol rises, and the price of a used Ford Falcon

falls.

The oil is produced by a single refinery (a monopolist) which is owned by an entrepreneur called Sluggo. The demand for oil which is produced in Sluggo's refinery is Q= 50-P. The cost function of the refinery is given as: C(Q)=8+4Q.

It is also known that there is a (constant) marginal external cost of 6$ per unit of oil production resulting from environmental damage associated with production.

(a)  As a profit maximizer how much would Sluggo like to produce?

Demand curve q= 10-2p

Price elasticity of demand = -2/3 at price p* how much is p*

1.     Suppose, the market demand and market supply function of rice are Q­_D = 30 – 3P and Q_S= 20 + 2P respectively. Find out – i) Market price and quantity of rice. ii) If due to the increase in the increase in the income of the consumers, the demand increases to Q_D= 40 - 3P, what will happen to the market price of potato? iii) If the consumers expect that in near future the price of rice will be decreased, how it will affect the current market price of rice? Use graph if required. iv) If the rice farmers of Dinajour send most of their rice to Dhaka City for higher price, what may happen to the market price of rice in Dinajpur? Use graphs. v) If the price becomes Tk. 4, what will happen to the market? vi) If the price becomes Tk. 2, what will happen to the market?

1. Assume the following market demand curve: Q = 13 – 0.5P. Assume marginal cost is constant at $2.

Also assume there is a dominant firm with 6 identical competitive fringe suppliers. .

The following information will be useful for this problem:

           Residual Demand = Market Demand – Fringe Supply

           Total Fringe Supply: 3 + 0.5P

a. Calculate the equilibrium price and quantity for the dominant firm and the average fringe firm.

b. Calculate the value consumer surplus (based on total output--the dominant firm + fringe).

c. Calculate the deadweight loss (based on total output--the dominant firm + fringe).

d. Calculate the profit for the dominant firm.

e. Illustrate the Demand, market price, market quantity, consumer surplus and deadweight loss(based on total output--the dominant firm + fringe) .