Microeconomics Answers

Production at Point A - 0 Tubas & 25 dishwashers 

Production at Point B - 30 Tubas & 20 dishwashers 

Production at Point C - 50 Tubas & 10 dishwashers 

Production at Point D - 60 Tubas & 0 dishwashers 

Production at Point E - 40 Tubas & 20 dishwashers 

Production at Point F - 30 Tubas & 10 dishwashers 

Using the production possibilities frontier above:

Explain what would happen to the production possibilities frontier if there were a technological breakthrough in producing tubas.     

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

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

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

If an individual’s preferences are described by the utility function U(X1 , X2 ) = X12 + X22, graph the indifference curve for U = 20 and U= 40.Find the optimal consumption quantities if P1 = US$2.50 ;         P2 = US$ 7.50; and M = US$ 60.

Let us assume two goods, skis and bindings, that are perfect complements. That is one-for-one complements. Maureen spends all her equipment budget of US$1,200 per year on these two goods. Skis and bindings each cost US$ 200 per pair. What will be the income and substitution effects of an increase in the price of bindings to US$ per pair?  

Discuss how you would expect a ban on liquor advertising to affect the profitability of:

- existing high market share liquor brands. (3)

- existing low market share; and (3)

- potential new entry of brands. (3)

Discuss some other products that sustains product differentiation through substantial advertising and promotion expenditures.

2.1 Differentiate between the main types of advertising and clearly indicate which one of the two types is commonly used within the liquor industry. Motivate your answer. (6)

2.2 How might advertising by a particular company affect that firm's sales and liquor demand overall?

Using the Structure Conduct Performance (SCP) paradigm, discuss the current ‘state of affairs’ o of the following South African industries.

- Banking Industry

- Telecommunication Industry

- Electrical Power Industry

- Fast Foods Industry 

 Malita has K150 of disposable income to spend each week and cannot borrow money. She buys Milk balls and a composite good. Suppose that Milk balls cost K2.50 per bag and the composite good costs K1 per unit.Sketch Malita’s budget constraint.What is the opportunity cost, in terms of bags of Milk balls, of an additional unit of the composite good?Suppose that in an inflationary period the cost of the composite good increases to K1.50 per unit, but the cost of Milk balls remains the same. Sketch the new budget constraint.What is the opportunity cost of van additional unit of the composite good?Suppose now Malita demands a pay raise to figjht the inflation. Her boss submits and raises her salary so that her disposable income is now K225 per week. Sketch the new budget constraint. Is Malita better off?What is the opportunity cost of an additional unit of the composite good?

Definition of rationing and signaling.

Ashima has rs 88 with her. She intends to purchase chocolate and ice cream with this money.The market price of chocolate and ice cream per unit is rs 8. The total utility schedule for her is given below. Find out how many chocolates and ice cream should Ashima purchased that she will get maximum satisfaction