Microeconomics Answers

1. Explain the law of diminishing marginal utility.

2. What do you understand by Marginal Rate of Substitution (MRS) between two goods? Illustrate with diagram(s).

Suppose the market for corn in Ghana is described by the following demand and supply

equations:

Demand: P = 100 – (1/2)Q

Supply: P = 10 + (13/10)Q.

 Where, P is price(₵/bag); and, Q is quantity(bags). Use this information to answer the

following questions.

a. What is the equilibrium price and quantity of corn in this market?

b. Plot the demand and supply of corn and show the intercept values, equilibrium quantity

and price.

c. What is the total revenue derived in this market?

A farmer at the beginning of the year is going to use the calculation of probabilities for determining an expected value for the yield of a crop of Maize.

The expected value of a project E(O_j) whose outcomes were uncertain would be calculated as: n

E(O_j) = P(q_i) O_ij

I = 1

where:

n

E(O_j) is the sum of the subjective or personal probabilities, P(q_i) for

I = 1

each event-action combination O_ij occurring.

For the best season of 1 year out of 10, a farmer believes the yield of wheat could be 5 tonnes per hectare.

For a good season, the yield could be 4 tonnes per hectare for 3 years out of 10.

For the most likely season, the yield could be 3 tonnes per hectare in 4 years out of 10.

For a poor season, the yield could be 1 tonne per hectare in 1 year out of 10.

For the very worst season, the yield could be 0.5 tonnes per hectare in 1 year out of 10.

Calculate the expected yield for wheat that would be used in the budget?

Product differentiation occurs when

5. A household buys 30 units of a commodity when its price is ₹5 per unit. The quantity demanded 

falls to 25 units when the price rises to ₹6 per unit. How much is price elasticity of demand. 

The utility function of Master Enterprise is

U (T, M) =   T^1/4   M^3/4

Where T and M are the two goods that the Enterprise sells. The owner of the Enterprise is interested in finding out the demand function of its product. Help him:

• Find the demand function for Good T and Good M.
• Use an Income of $8000 and the Price of Good T as $5.00 while the price of Good M as $12 to find the optimum bundles of Good T and M.