Microeconomics Answers

The Long-run production function is given by; Y = 180 L1.2 K1.8

Where, Y = Output (mt/day), L = Labour (hours/mt) K = Capita (Rs/mt)

a) Calculate Marginal Product of Labour (MPL) and Marginal Product of Capital (MPK), if

L=12 and K=20 (05 Marks)

b) Derive the equation for Isoquent and graphically show it by assuming L= 10, 15, 20 25 and

30. (05 Marks)

c) Determine factor intensity and returns to scale of this production function. (05 Marks)

d) Prove that the elasticity of labour is 1.2 and elasticity of capital is 1.8 (05 Marks)

1.     Suppose that the total utility function of a consumer is given by TU(x,y) = 3x2 y and the prices of X and Y are 1 Birr and 2 Birr per unit, respectively. If the income of the consumer is 600 Birr and if he spends all of his income on the consumption of commodities of X and Y, find the optimum amount of X and Y that the consumer will consume at equilibrium and find MRTSx,y.

If the government decided to provide the consumer a quantity subsidy of 5 birr on good X and ad valorem subsidy of 12% on consumption of good Y. Compute price elasticity of demand and supply at market equilibrium in A and B. Also comment on the nature of elasticities

the linear demand function is given below. Qd = β0 +β1Psh +β2M+β3Pcg+β4Ax+ β5C Where, Qd = deluxe room in S hotel Psh = Price of a deluxe room in S hotel (US$/room) = US$. 200.00 M = Visitors per capita income (US$/Day) = US$ 120 Pcg = Price of a deluxe room in C (US$/room) = US$. 150.00 Ax = in S hotel (US$/room) US$. 18.00 C = Customer Satisfaction Index = 8.56 The estimated computer output of the A above model under Least Square Method (LSM) is as follows, Dependent Variable: Q R- Square: 0.86 T table value 1.671 No of observations: 62 F- Ratio: 154.15 Variables Parameter Estimate Standard Error β0 127.8 49.6 β1 -1.3.0 0.42 β2 2.75 1.01 β3 2.55 1.21 β4 1.41 0.48 β5 1.85 0.23 a) Are estimated parameters comparable with economic theory? Explain b) Construct the TR function and determine the TR maximize demand b) What are the significant parameters that could be impact on the demand for a deluxe room in S hotel?

Suppose the demand and supply functions for milk are given by the equations:

Q_D=200/P

30=-Q_S+5P

1. Calculate the equilibrium price and quantity of milk
2. Suppose the government introduces a per unit tax of $12, calculate the new equilibrium price and quantity
3. Produce a relevant sketch of answer (1) and (2)
4. calculate the share of tax born by the producer and the consumer
5. How much is the tax yield?
6. what is the fraction of tax borne by the consumer and the producer?
7. calculate the arc price elasticity of demand for (1) and (2) and interpret the results. What pricing policy is recommended?

Which one of the following statements is incorrect? Under perfect competition 

• A. marginal revenue is always equal to the price of the product.
•  B. average revenue is always equal to the price of the product.
•  C. average revenue is always equal to marginal revenue.
•  D. marginal revenue is always equal to marginal cost.

Which one of the following is not a requirement for or a characteristic of perfect competition? 

A. all market participants should have perfect knowledge of market conditions.

•  B. the good must be homogeneous.
•  C. there should be no government intervention.
•  D. every firm must have the power to set its price