Microeconomics Answers

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.

Question One 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?

Question Two

What is a Pareto superior allocation? When is an allocation said to be Pareto improving? At what point is Pareto Efficiency reached. In Figure 1, W represents the endowment while X, Y, and Z represent alternative allocations. In the light of the above definitions, describe the various moves to and from these points as reflecting Pareto superior, Pareto improving and Pareto efficient allocations. Figure 1 Grace Judith Vials of perfume Bales of cloth Bales of cloth Vials of perfume U J U G W X Y Z Contract Curve

Question Three

Discuss the main features of the Ricardian Theory of Rent. How do these contrast with the Modern Theory of Rent?

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?

Give the formulas for and plot AFC,MC,AVC and AC if the cost function is 1.C=10+10Q, 2. C=10+q², 3.C=10+10q-4q² +q³.