Microeconomics Answers

"As long as preferences are Convex, every Pareto efficient allocation can be supported as competitive equilibrium" Explain using edge worth box.

In equilibrium a consumer was buying 5 units of good A and some of good B. His income was Rs 100 and the prices were PA = Rs 8 and PB = Rs 5. The price of good A falls to Rs 5. By how much does his income need to be compensated so that he is able to buy the (old) bundle at the original equilibrium?

1) What is an income consumption curve? Is it always upward sloping?

2) What is an Engel curve? Is it always upward sloping?

Explain why the marginal rate of substitution of one good for another should decline as more of the good is consumed?

How are total utility and marginal utility curves related? ‘If we know a total utility schedule, we can derive a marginal utility schedule and vice versa.’ Is this correct? Give reasons.

How would a speculation that petrol price is going to be doubled in two days affect your demand for petrol today and why? Provide economic explanation

1. Discuss the difference between individual and market demand.

2.     How does the study of managerial economics help a business manager in decision-making? Illustrate your answer with example from output and pricing issues.

1. Explain the difference between micro and macroeconomics?
2. State why managerial economics should be thought of as applied microeconomics?
3. Explain the difference between short run and long run production.
4. What does perfect completion mean? State few assumption of perfect competition.
5. Discus the idea of wealth- maximization objective of the firm and its relevance comparing to that of the profit maximization objective?
6. Why do monopolies arise in the market?
7. Discuss the types of price discrimination using example.
8. Explain the difference between market segmentation and targeting strategies.

2.     Suppose that there are 250 identical individual consumers in the market for commodity X, each with a demand function given by d_x = 6-P_x and 50 identical producers of commodity X, each with a supply function given by s_x =5P_x. (8 Marks)

a)     Derive the market demand function and the market supply function for commodity X.

b)     Compute the market equilibrium price and equilibrium quantity mathematically.

c)     Tabulate the market demand schedule and the market supply schedule for commodity X.

d)    show whether surplus or shortage occurs at

i)                   P = 2

ii)                 P = 5

1.     Assume the following for price discriminating monopolist aimed at maximizing profit. Total demand for the product of the monopolist is Q = 50-5P (P = 100-2Q) (10 Marks)

·        Demand in Market one is Q1= 32-0.4P1(P1= 80-2.5Q1)

·        Demand in Market two is Q2= 18-0.1P2(P2= 180-10Q2)

·        Cost function is C = 50+40Q (where Q = Q1+ Q2)

a.      Find equilibrium quantities (Q1and Q2),

b.     Find equilibrium prices (P1and P2),

c.      Calculate profit (π),

d.     Calculate and Interpret elasticities (ε1 and ε2)

1. If the inverse demand curve of profit maximizing monopolist is given as P =1200 − 2Q , and cost function as

 C = Q3 − 61.25Q²+1528.5Q + 2000, find equilibrium output level, monopolist price, and profit. (6Marks)