Microeconomics Answers

The pencil market is controlled by two firms: AAA Pencil Company and BBB Manufacturing. The structure of the market makes secret price cutting impossible. Each firm announces a price at the beginning of the time period and sells pencils at the price for the duration of the period. There is very little brand loyalty among pencil buyers so that each firm's demand is highly elastic. Each firm's prices are thus very sensitive to inter-firm price differentials. The two firms must choose between a high and low price strategy for the coming period. Profits (measured in thousands of Rands) for the two firms under each price strategy are given in the payoff matrix below.

 AAA - low price

AAA - high price

BBB - low price

60, 60

250, -20

BBB – high price

-20, 250

130, 130

Suppose LA.Banana employs workers to harvest bananas. Answer the following questions using the information provided below:

Quantity of labour:

1. 0 labour
2. 1 labour
3. 2 labour
4. 3 labour
5. 4 labour
6. 5 labour
7. 6 labour

Units of Output:

1. 0 banana
2. 16 banana
3. 21 banana
4. 25 banana
5. 31 banana
6. 36 banana
7. 40 banana

a.) Calculate the marginal product of labor, the value of the marginal product of labor, and the marginal profit ,suppose a fully competitive company, LA"Banana, where wages are fixed at $800 and each banana (output) sells for $20. 

In Thailand, a firm named SunFly is planning to monopolize its streaming services. The table below displays SunFly's monthly streaming service pricing as well as the quantity demanded for each pricing. 

Price (฿):

1. ฿ 130
2. ฿ 120
3. ฿ 110
4. ฿ 100
5. ฿ 90
6. ฿ 80
7. ฿ 70
8. ฿ 60
9. ฿ 50

Quantity demanded:

1. 10,000
2. 20,000
3. 30,000
4. 40,000
5. 50,000
6. 60,000
7. 70,000
8. 80,000
9. 90,000

a.) Calculate 1.total revenue, 2.average total revenue, 3.marginal revenue, 4.total cost, 5.average total cost, and 6.profit using the information given. (The firm has made a ฿3 million investment in their streaming offerings. In addition, the firm has faced a marginal cost of ฿10 for each streaming service it offers. )

Which of the following statements are true in the long-run equilibrium of a perfectly competitive market economy? (Choose “True” or “False”) (a) By re-allocating the inputs, the economy can produce a larger quantity of every consumption good.

Q1)

P_a | Qd_a | Qd_b | I

----------|------------ |------------|-------------

6.0 | 100 | 20 | 2000

| | |

6.5 | 90 | 30 | 1800

| | |

7.0 | 70 | 50 | 1600

| | |

7.5 | 40 | 70 | 1400

| | |

8.0 | 10 | 85 | 1200

where, P_a = Price of A

Qd_a = Quantity demand for A

Qd_b = Quantity demand for B

I = Income

On the basis of the above data, answer the following questions: -

(i) If income increases from $ 1000 to $ 2000, from the above table estimate the elasticity of demand.

(ii) Compute the income elasticity of demand for A & B when income of consumer increases from $ 1400 to $ 1800. Also interpret the result and explain the result by the method of a diagram.

Q2) If quantity demand for chicken increases by 20% when price of beef increases from 0.4 penny to 0.5 penny, then compute the cross price elasticity from chicken to beef.

The equation of an estimated demand function is as follows: -

Qd_A (Quantity demand for A) = 200.5 - 2.5 P_a - 1.5P_b + 3.5 I

where, P_a = Price of A

P_b = Price of B [It is a related product]

I = Income

(i) Determine the demand when P_a = $ 500, P_b = $ 100 and I = $ 3000

(ii) Estimate the price elasticity, cross-price elasticity and income elasticity of the demand according to point method.

(iii) Estimate the elasticity of the demand according to proportion method if P_a2 = $ 515, P_b2 = $ 105 and I = $ 3500.

The demand function of a product is as follows: -

q_a = 200.5 - 3.5P_a + 2.5I

and, P_a = $ 50 and I = $ 1000

(i) Compute the demand when P = $ 60 and 'I' is constant.

(ii) Compute the demand with P = $ 50 and I = $ 1500.

(iii) Explain this phenomenon by the help of a diagram by the method of change in demand and shift in demand.

1. If the supply function of a firm is given as follows: -

S = 200.25 + 4.5P

Interpret the supply function and explain by the help of a diagram.

2. Given d_a (Demand of a) = 200.5 + 3.5I. Suppose this is an income demand function, interpret the result and show by the help of a diagram.