Microeconomics Answers

The monopolistic competitor faces a demand curve given by Q (p) = 50−5p. Its cost function is C(y) = 4y. What is its optimal level of output and price?

1)     A consumer has a utility function given by

ln U = 5 ln x₁ + 3 ln x₂

if the budget constraint is given by

10x₁ + 14x₂ = 124, find

i)                  the optimal quantities of the two goods that the consumer should purchase in order to maximise utility, subject to the budget constraint.

ii)                the value of the consumer’s marginal utility of money at the optimum

iii)              the marginal rate of substitution (MRS) of x₁ for x₂ and determine its direction at the optimum

“Fifty percent of cut roses sold in February are sold on Valentine’s Day. On Valentine’s Day in a recent year, the price of a dozen roses jumped from $8.00 to $19.99 at one local store in Chicago. Another bestseller on Valentine’s Day is candy. About 13 percent of the annual sales of candy take place on Valentine’s Day. Yet the price of a box of chocolates increases modestly if at all on this holiday.” Can you explain why this happens? 

Suppose that the firm output is given by q=aLK² specify the marginal products of labour and capital

Explain the following terms using a diagram A Cobb Douglas production function

What is Inflation? How it is measured? What Fiscal and Monetary policies are generally adopted to curb inflation?

Briefly explain how firms compete/set price under the Oligopoly market structure.

What is meant by price discrimination? What are the conditions to make price discrimination effective? Discuss your answers with examples from the Airline Industry.

We assume a firm's production is determined on two inputs, capital(K) and labour(L).

(a)    Suppose that a firms out put is given by: q = αLK²          

Where α is a productivity factor.

i. Specify the marginal products of labour and capital.

If the cost function is C = wL + rK. Specify the quantites of capital and Labour that minimize costs