Microeconomics Answers

For an individual firm compare Marris’s Model of growth maximization with traditional model for profit maximization ?give explanation?

with the aid of a well labelled diagram briefly explain the concept of opportunity cost, scarcity and choice in the production possibilities frontier

Assume you are the manager of a small South African firm which sells nails, identical to those supplied by many other firms. You are concerned about two eventualities: • That the overall market supply of nails will decrease by 2 percent due to foreign producers’ exit • That the overall market demand for nails will increase by 2 percent due to a growing economy.

2.1 Identify and justify the firm’s market structure. (5)

2.2 With the aid of a diagram, illustrate and explain the firm’s long-run equilibrium position. (10)

2.3 The schedule below shows the quantities of nails demanded at each price:

Price Quantity Old 400 10000 New 380 12000

2.3.1 Calculate the elasticities of demand, using the point method and interpret your result. (6)

2.3.2 List any four (4) factors that could result in the nails having the elasticity calculated in 2.3.1

1) Describe the steps involved in running an OLS regression from the initial point of

deciding the theoretical model to stating the conclusions on the results.

The investors of Smith Autos have put up $500,000 to construct a building and purchase all equipment required to wash cars. The investors expect to earn a minimum return of 10% on their investment. If the money to set up the business had been borrowed from a bank instead, the car wash owners would have paid a 10% interest rate. The car wash is open 50 weeks per year and washes 800 cars per week. Whether operative or not, the company must pay $1,000 per week return to investors and $1,000 per week as insurance. The variable costs for the 800 weekly washes includes $1,000 labour cost and $600 materials cost. There are many car washes of equal quality and service in the area and they charge $5 per car wash.

1.  Graphically represent the company's performance, showing profit or loss.

A firm uses Labour (L) and Capital (K) to produce commodity (Y). The quantities of the inputs and

outputs are shown in the table below.

L 0 1 2 3 4 5 6 7 8 9 10

K 90 90 90 90 90 90 90 90 90 90 90

Y 0 100 250 420 560 675 760 820 860 885 900

Given the demand and supply equations: Q P D = 60 − 4 and Q P S = −10 + 6 , complete the table below,

plot the two curves and hence determine equilibrium price and quantity. Mark the regions that measure

the consumer’s and producer’s surpluses in the graph.

A firm has the following revenue and cost functions.

TR = 120 Q – Q²

TC =  1/2Q² +30 Q + 10

Determine the quantity level at which the firm maximizes its total profit.

(Hint: use marginal revenue = marginal cost rule)