Microeconomics Answers

Syarikat Berjaya Emas is a single company in the industry that produces products for which there are no close substitutes. The company maintain its current position of dominance in the market by forming different barriers of entry to prevent new competitors from entering the industry. Besides, the company also use a price discrimination strategy to charge different buyers at different prices for the same product even though the cost is the same.

Assume that you are the decision maker of Syarikat Berjaya Emas. Apply your knowledge in market structure to discuss FOUR major attributes of the market structure which Syarikat Berjaya Emas operates. Relevant examples and explanation for each attribute provided are required to support your answers.

 Consider the utility function U (x, y) = 3x² + 5y with MUx = 6x  and MUy  = 5 .

Required a)  Is the assumption that ‘more is better’ satisfied for both goods?

b) What is MRSx, y for this utility function? 

c) What does the MRS_x,y tell us?

d)  Is the MRSx,y  diminishing, constant, or increasing as the consumer substitutes x for  y along an indifference curve? why 

e) Will the indifference curves corresponding to this utility function be convex to the origin (bowed toward the origin), concave to the origin (bowed away), or straight lines? Explain.

Consider the utility function 𝑈(𝑥, 𝑦) = 𝑥𝑦 + 𝑥, with 𝑀𝑈𝑥 = 𝑦 + 1 and 𝑀𝑈𝑦 = 𝑥. (Verify these.) 

a. is the assumption of “more is better” (non-satiation) satisfied for both goods x and y? 

b. does the marginal utility of 𝑥 diminish, remain constant, or increase as the consumer buys more 𝑥? Explain. 

c. what is 𝑀𝑅𝑆𝑥,𝑦? 

d. is 𝑀𝑅𝑆𝑥,𝑦 diminishing, constant, or increasing as the consumer substitutes 𝑥 for 𝑦 along an indifference curve? 

e. on a graph with 𝑥 on the horizontal axis and 𝑦 on the vertical axis, draw a typical indifference curve (not necessarily exactly to scale, but should reflect whether 𝑀𝑅𝑆𝑥,𝑦 is diminishing or not). Label the curve as 𝑈1. 

f. on the same graph, draw a second indifference curve 𝑈2, where 𝑈2 > 𝑈1

The demand and cost function for a company is estimated to be as follows: 

P = 100-8Q; TC = 50+80Q-10Q 2 + 0.6Q 3.

A.   What Price should it charge if it wants to maximize its profit in the short run?

B.    What price should it charge if it wants to maximize its revenue in the short run?

The demand and cost function for a company is estimated to be as follows: P = 100-8Q; TC = 50+80Q-10Q 2 + 0.6Q 3. Suppose the company lacks confidence in the accuracy of cost estimates expressed in a cubic equation and simply wants to use a linear approximation. Suggest a linear representation of this cubic equation.