Microeconomics Answers

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)       

a)     An auto-parts company of Australia wants to establish a plant outside Australia. The alternatives are Fiji, PNG, Samoa and NZ. Given its financial situation, the company is constrained to set up only one plant outside Australia. Assume that the setting-up costs and the operating costs of a plant in any of these four countries are the same. The marketing research department offers a projection that if the plant is set up in Fiji, PNG, Samoa or NZ, it will fetch a turnover (revenue) of $2.5 million, $2 million, $2.3 million and $2.8 million respectively. Of course, given these choices the company will opt to set up a plant in NZ. What is then its opportunity cost?

a)     John is an economist working for Ministry of Tourism in Suva, earning $30,000 per year. There are, say, three alternative careers available for John. He can work for Reserve Bank or Ministry of Economy in Suva for $25,000 and $28,000 per year respectively. Still another alternative is that he can set up his own economic consultancy firm, expecting to make a profit of $27,500 a year for himself. What is John’s opportunity cost of working in Ministry of Tourism?

Briefly, discuss how economist test theoretical economic models?

Suppose the market demand and supply are described by the following information: Q = 200 - 2P + 4i and Q = - 50 + 3P (5)

Determine the equilibrium price and quantity of the above market when i=50.

b)

Plot a graph showing the above results.