Microeconomics Answers

Given the Cobb- Douglas production function for Preshzo Company limited as follows:

𝑄=K^0.25L^0.75

She estimates that the cost of labour is $3 and the cost of capital $4. You are required to do the following:

a) If she wants to produce 50kg of are output, formulate both the objective and constraint functions for Preshzo Company limited.

b) Find the minimum cost for both labour and Capital required to produce 50 kg units of output.

c) Find the shadow price lambda and interpret the coefficient of lambda.

d) Prove that the maximum unit produced at the lowest cost is 50 kg.

1.   , please describe what happens when Price is above the Equilibrium Price?

1.   Please explain the relationship of the curves in Figure 3:

Figure 3: Demand and supply curves

the curves quantity and price equal

2.   Based on Figure 3, please describe what happens when Price is above the Equilibrium Price?

As the economies of the whole world grow more interdependent, a country’s monetary policy can no 

longer be conducted without taking international considerations into account.

Using practical examples, discuss how the South African central bank’s Monetary Policy Committee

(MPC) may use the following alternative monetary policy strategies.

i. Capital controls. (10)

ii. Exchange targeting. (15)

QUESTION 2: (25 MARKS)

Using diagrams and examples, compare and contrast the Classical economists’ Quantity Theory and the 

Keynesian’s Liquidity Preference Theory of money demand. (25)

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

A firm has a Cobb-Douglas production function given as q=L0.6K 0.2 Suppose that in the Short run, the mill’s capital (K) is fixed at 32 units and that it can only increase output q by increasing the amount of labour (L) a. Determine the firms’ SR production function b. If the firms’ competitive output price is ₵50 find its labour demand curve c. How many workers does the firm hire if the wage rate is ₵15? d. What is the MRPL between the 31st and 32nd worker who is hired at the competitive price?