Microeconomics Answers

Bread and Butter are the two complementary goods that people often prefer to consume for breakfast in the weekend. The utility function for the two goods are:

U (B, M) =   min (4B, 16M)

•  Find the demand function for Bread (B) and Butter (M) using the above utility function. 
• What would be the quantities of Bread (B) and Butter (M) if an individual is willing to spend $20 on Bread (B) which costs $2, and Butter (M) which costs $4.

Suppose the demand equation for cheese is

QD = 50 – 0.55P

Determine the price elasticity of demand when the price of cheese is

$6.00

$8.00

$10.00

$12.00

Identify whether demand is elastic, inelastic, or unit elastic at each price level.

A utility function is given as U(X,Y) = 3 X 5/6 Y 1/6 a. Find the demand function for good X and good Y. 

Felina prefers to spend her living allowance of $1500 on Mobile data and food. She prefers to pay purchase $10 Mobile Data (D) per week and spend $50 on food expenditure (F). Her utility function with the given income, prices of the two goods and preferences is as follows: U(D,F) = 4 D 3/4 F 1/4 a. What utility-maximizing combinations of mobile data and food should Felina buy in a semester with the given income and prices of the two goods? 

Consider the perfectly competitive market for Diesel. The aggregate demand for gasoline is The aggregate demand for gasoline is

𝑄𝑑 =100−𝑝

While the aggregate supply is 𝑄𝑠 = 3𝑝

a) Work out the equilibrium price and quantity.

b) At the equilibrium level established in part a), calculate the consumer surplus, producer surplus

and total surplus. [7 Marks]

c) It is established that most fuel stations are going out of business To address this problem, the government decides to set a minimum price of 𝑝̅ = 30 . What will be the new equilibrium price and quantity? What will be the new consumer surplus and producer surplus? Who gains and who loses from this regulation? Explain how the total surplus affected? Briefly explain the

intuition

 [5 Marks]

e) What would be the Price Elasticity of Demand for tickets from Lusaka to Livingstone if the price rises again from 250 kwacha to 300 kwacha? [5 Marks]

f) Explain why the answer in part d) and part e) are different.

This problem involves solving demand and supply equations together to determine price and quantity. QD = -2P +20 QS = 2P – 4

 Represent the information below in an appropriately labelled diagram and decide whether the firm  should continue production or shut down in the short run. 

The loss-minimizing quantity is 100 mugs. The average variable cost (AVC) is 9 taka per mug and  the average fixed cost (AFC) is 4 taka per mug. The firm charges a price of 12 taka per mug. 

let’s assume that Patty buys a new high-tech pizza oven that allows her workers to become twice  as productive as before. That is, the first worker now produces 18 pizzas per hour instead of 9, and so  on.  

e) Calculate the new MPL and the new VMPL at the original price of $2 per pizza using the new  information above.  

f) Using answer e) determine how Patty’s hiring decision responds to this increase in the productivity  of her workforce when the wage rate is $10, i.e., will she hire more workers or less workers than  before or not change the number of workers? (use a diagram if needed).