Microeconomics Answers

“The SA pharmaceutical industry is expected to deliver R73bn in sales by 2025, according to

Invest SA’s Fact Sheet published by the department of trade & industry. That’s a significant

increase on the predicted estimate of R51bn for this year alone, ensuring that the

pharmaceutical industry is one of the most actively growing sectors in SA, and a huge

contributor to the country’s bottom line.Using the Structure – Conduct - Performance (SCP) paradigm, discuss the current ‘state of

affairs’ of the pharmaceutical industry in South Africa. Be mindful to outline the associated

SWOT analysis.

Do you think that the concept of dualism adequately portrays the development picture in most developing countries? Explain

Explain the association of the following diagram (hints: the association has directions; from sales order to customers, and from customers to sales orders)?

What is segregation of duties and why internal controls need segregation of duties?

Q.1) Fresh Food has recently carried out a survey of the demand for their seasonal fruits. They observed the following

outcomes over the last seven months:

  Quantity Sold

  8500

  4700

  5800

  7400

  6200

  7300

  5600

Price Advertising

$ 2 $ 2,800 $ 5 $ 200 $ 3 $ 400 $ 2 $ 500 $ 5 $ 3,200 $ 3 $ 1,800 $ 4 $ 900

            Regression (Equation)

QSold = 8536.213882 - 835.7223514 Price + 0.592228496 Advertising

A. Estimate sales when the price is $50 and advertising is $100,000, stating any assumption that you need to make.

B. If the firm charges $50 and cost per unit is $30 but increases advertising to $110,000, what conclusions can you derive in terms of revenues and profits?

Q

For each of the following production functions, determine whether returns to scale are decreasing, constant, or increasing,

a. Q = 2K + 3L + KL

b. Q = 20K^0.6 L^0.5

c. Q = 100 + 3K + 2L

d. Q = 5K^0.459 L^0.541

e. Q = 5K^0.37 L^0.56

f. Q = K/L

The marginal product of labour function for International Trading Inc. is given by the equation

MP_L = 10 K^0.5/ L^0.5

Currently, the firm is using units of capital and 121 units of labour. Given the very specialized nature of the capital equipment, it takes six to nine months to increase the capital stock, but the rate of labour input can be varied daily. If the price of labour is $10 per unit and the price of output is $2 per unit, is the firm operating efficiently in the short run? If not, explain why, and determine the optimal rate of labour input.

1. Use the production function Q = 10K^0.5L^0.6 to complete the following production table.

Rate of Capital Input (K)

6 24.5 56.3 71.8

5

4 30.3

3 45.5

2 27.3

1 10.1 29.9

1 2 3 4 5 6

Rate of Labour input (L)

a. For this production system, are returns to scale decreasing, constant, or increasing?

b. Suppose the wage rate is $28, the price of capital also is $28 per unit, and the firm currently is producing 30.3 units of output per period using four units of capital and two units of labour. Is this an efficient resource combination? Why? ( Hint: Compare the marginal products of capital and labour at initial combination.)

The marginal product of labour function for International Trading Inc. is given by the equation 

                                           MP_L = 10 K^0.5

                                                        L^0.5

Currently, the firm is using 100 units of capital and 121 units of labour. Given the very specialized nature of the capital equipment, it takes six to nine months to increase the capital stock, but the rate of labour input can be varied daily. If the price of labour is $10 per unit and the price of output is $2 per unit, is the firm operating efficiently in the short run? If not, explain why, and determine the optimal rate of labour input. 

Use the production function Q = 10K^0.5 L^0.6  to complete the following production table

Rate of Capital Input(K)

 6 24.5 56.3 71.8

5

4 30.3

3 45.5

2 27.3

1 10.0 29.3

1 2 3 4 5 6

  Rate of Labour Input (L)

a) For this production system, are returns to scale decreasing, constant, or increasing? Explain.

b) Suppose the wage rate is $28, the price of capital also is $28 per unit, and the firm currently is producing 30.3 units of output per period using four units of capital and two units of labour.Is this an efficient resource combination? Explain. What would be a more efficient (not necessarily the best) combination? Why? (HINT: Compare the marginal products of capital and labour at the initial combination.)

find MR , TR ,Q*, P*

1. Q= 25-2p

2. P = 100-10Q

3. 50- 0.5 P

4. 10-0.1Q