Microeconomics Answers

. When price-consumption curve is horizontal (refer the graph), the demand is -----------------------------.

a.

Inelastic

b.

Perfectively elastic

c.

Unitary elastic

d.

Elastic

Use marginal approach calculate the optimum combination of the following 

Product (Y₁) - product (Y₂) relationships given data of two competitive crop products with Total land input X = 35 units. 

Price of product 

Y1 is $10 and the price of product Y2 is $5 per unit). 

The price ratio Py1 is $10 and price Py2 is 5. Use table for showing your calculations.  

Production functions for two crop products using the same input X (35 acres of land)  

Input X  

0 

10 

20 

30 

40 

50 

60 

70  

Product Y₁  

0  

14  

26 

36 

44 

50  

54  

56  

Product Y₂  

0  

22  

40  

56  

70  

82  

92  

98

. If a consumer increases her quantity of ice cream consumed by 100% when her income rises by 25%. Calculate her income elasticity of demand for the ice cream and interpret the result

Assume you are managing a food processing plant in Ethiopia. The demand function 

for one of your product is given as Qd=50-2p. (8 marks)

a) Find the point price elasticity if price is 15 ETB? Is it elastic or inelastic?

b) How do you interpret the elasticity result? 

c) In order to get more revenue what will be your recommendation. Is it to increase 

price or decrease price? Why? 

d) Describe at least four determinants of the price elasticity demand for the food 

product?

What is the relation between productivity and cost? Describe the association

using equations for MC & MP, and AP & AC

What is the relation between productivity and cost? Describe the association 

using equations for MC & MP, and AP & AC

For a monopolist firm the demand and the total cost functions are given as Q = 20-

0.5P and TC= 4Q2-8Q+15, respectively. 

If Qs = -20 + 10p, and Qd = 400 - 20p, what is the equilibrium price and quantity?

Suppose the income for Themba is R40 per month. Themba decides to use all his income on consuming two goods which are fish and pork. The price of fish is R5 and the price of pork is R8.

a)   Clearly illustrate on the graph the combination of the two goods he can afford. Let fish be on the vertical axis and pork on the horizontal axis.

b)   Calculate the slope of the budget line.

Question 3

Suppose electricity is a fixed cost and the price and the price of electricity rises.

       I.        What happens to the average total cost curve (ATC)? and illustrate this effect graphically.

      II.        Graphically illustrate what happens on the marginal cost curve.

A firm has the following production function:

Q = 9L^2/3K^1/3

Where Q is output, L is labor and K is Capital.

Where Q is output, L is labor and K is Capital.

(a) What sort of returns to scale characterize this production function?

(b) Derive the marginal product of labor and capital.

(c) What do we mean when we say the production function is linearly homogenous?