Search & Filtering
approach and ordinal utility (indifference curves) approach.
a) The effect of increase in price of Y on the budget line when price of X and income are
constant.
b) The effect of decrease in price of Y on the budget line when price of X and income of
the consumer remain constant.
unit, write the budget line equation assuming that the consumer spends all of his 500 Birr income
on the two commodities, X and Y. 5 Mention at least one assumption which is common for both
the cardinal and the ordinal utility approaches
Average revenue= 170 + 16Q + Q2
Calculate total cost, Total Revenue,marginal cost, marginal revenue, equilibrium output, profit or loss
Price of T-shirt
Quantity of T-shirts demanded when average tourist income is $20,000
Quantity of T-shirts demanded when average tourist income is $30,000
$4
3,000
5,000
5
2,400
4,200
6
1,600
3,000
7
800
1,800
a. Using the midpoint method, calculate the price elasticity of demand when the price of a T-shirt rises from $5 to $6 and the average tourist income is $20,000. Also calculate it when the average tourist income is $30,000.
b. Using the midpoint method, calculate the income elasticity of demand when the price of a T-shirt is $4 and the average tourist income increases from $20,000 to $30,000. Also calculate it when the price is $7.
Suppose that the utility function for two commodities is:
U (q1, q2) = q1α q2(1-α)
Let the prices of the two commodities be p1 and p2 and let the consumer’s income be M.
(1) Check the properties of marginal utilities. In particular, check whether it satisfies diminishing marginal utilities.
(2) Assuming all income is spent on these two commodities, derive the demand curves for the two commodities.
(3) What happens if U (q1, q2) = q1α q2β?
Suppose the prices of the commodities A and B are p1 and p2 respectively. The consumer purchases X1 unit of A and X2 units of B. Suppose, the consumer has an income denoted by M and the consumer would spend the entire amount of M on these two commodities. How are p1, p2, X1, X2, and M related?
U (Xi, Yt) = XiYt; for i = 1, 2, ... ... ... ..., M
Firms face the cost function:
Cj(qj) = q2j + F
(a) Solve for equilibrium in perfect competition.
(b) Show the effect of change in income on equilibrium quantity.
Do monopoly firms get a normal profit or supernormal profit in the short run? Explain how?
