Microeconomics Answers

1. You sometimes hear, “You can’t add apples and oranges.” Show that we can and do add apples and oranges in the national accounts. Explain how. [3 marks]

A perfectly competitive fir has the following cost function:

1/3q³-9/2𝑞² +10𝑞+500 32

and demand and supply functions are also given as:

𝑄𝐷 =50−3𝑃 and 𝑄𝑆 =10+2𝑃

What is the equilibrium price and quantity in this market?

What is the profit maximizing quantity that this firm would produce?

Malita has k150 of disposable Income to spend each week and cannot borrow money. She buys milk balls and a composite suppose that milk balls cost k2.50 per bag and the composite good costs k1 per unit.

a)sketch Malitas budget constraint.

Suppose a firm XYZ is a member of a monopolistically competitive industry and is 

earning super normal profit. What would be its demand curve over time and how your response 

would change if XYZ becomes member of an oligopoly; since implicit collusion tends to be 

fragile, oligopolistic firm often have a strong desire for price stability. Comment.

Tom puts money into an account. One year later she sees that she has 6 percent more dollars and that her money will buy 4 percent more goods. What are nominal interest rate and inflation rate?

Last year a country purchased $1.5 trillion worth of goods and services from foreign countries, sold $2 trillion worth of goods and services to foreign countries and had national saving of $1.25 trillion. What was the value of its domestic investment?

4. If an individual’s preferences are described by the utility function U(X1 , X2 ) = X12 + X22,

a) graph the indifference curve for U = 20 and U= 40.

b) Find the optimal consumption quantities if P1 = US$2.50 ; P2 = US$ 7.50; and M = US$ 60.

Explain why any imperfect market structure is one of the sources of market failures. Give an example by showing graph/calculation and descriptions.

Why was agricultural sector declared as critical Industry and exempt from the hardest lockdown regulations

    I.  What is the slope of an iso-cost line equal to and why? Provide mathematical explanation