Microeconomics Answers

Given that we do not know the demand schedules, does the concept of consumer surplus have any practical relevance? Or do we have to make assumptions to generate the equation for the demand schedule and then compute the consumer surplus? If so, why not assume the value of the consumer surplus. Examine the sensitivity of the consumer surplus to changes in two of the factors that are assumed as given when computing the consumer surplus.

A firm wants to minimize cost when Q=160=2√KL ;r=4 k=2

a) write out the Lagrangian function

b) Find K* and L*

c).Is the second-order sufficient condition for minimum satisfied?

Sally can make 8 cups of soup per hour or 20 crackers per hour. Harry can make 10 cups of soup per hour or 30 crackers per hour. Can Sally and Harry gain from trade? If so, what is the range of prices of crackers for soup at which they would both find trade advantageous? 

a) a farmer sells cabbages for N$ 10 per head. The farmers variable costs are N$ 2.50 per head and total cost of 100 heads is N$1450.

I) how many cabbages must the manufacturer produce each month to break even?

II) how many cabbages should be produced to make profit

b) Total cost of producing carrot is C(X)=3600+100x+2x^2 and the total revenue function R(x)= 500x-2x^2

I) find the number of kg that maximizes profit

II) find maximum profit

One of South Africa’s cellphone operators, Cell C, is changing their overall business strategy. The focus is now on providing customers with “affordable and accessible services." To do this they need your economic expertise.

They know that when price for premium services increases from R2/minute to R2.2/minute the demand for their services falls from 12 customers to 10 customers.

a. Using the point formula calculate the price elasticity of demand.

A firm wants to minimize cost when Q=160=2√KL ;r=4 k=2
find K and L

Cups of coffee and donuts are complements. Both have inelastic demand. A hurricane

destroys half the coffee bean crop. Use appropriately labeled diagrams to answer the

following questions.

a. What happens to the price of coffee beans?

b. What happens to the price of a cup of coffee? What happens to total expenditure on cups of

coffee?

c. What happens to the price of donuts? What happens to total expenditure on donuts?

The mesa Redbirds football team plays in a stadium with seating capacity of 80,000. However, during the past season, attendance averaged only 50,000. The average ticket price was $30. If the price elasticity is -4, what would the team have to charge in order to fill the stadium?If the price were to be decreased to $27 and the average attendance increased to 60,000, what is the price elasticity?