Microeconomics Answers

The monthly market demand curve for calculators among engineering students is given by 

P = 100 – Q. where P is the price per calculator in dollars and Q is the number of calculators purchased per month. If the price is UD$ 30, how much revenue will calculator makers get each month? Find the price elasticity of demand for calculators at this point. What should calculator makers do to increase revenue?

Use the labor-leisure model to analyze the effect on hours of work of a law requiring employers to pay “time-and-one-half” (that is, 1.5 times the straight-time wage) for hours worked over 40 per week. (A) Draw a budget constraint for someone earning $8.00 per hour who receives $100 a week in non- labor income. And total available hour is 100 per week excluding sleeping or going to church. What now happens to the budget constraint with the time-and-one-half requirement? (B) Given your answer to (A), draw an indifference curve so that, given the original budget constraint, the person is working 40 hours per week. What now happens to hours of work given the new budget constraint? Draw an indifference curve to show this phenomenon. Have hours of work increased or decreased as a result of the overtime law? Explain why. (C) In words, define the income and substitution effects. Next, use the graph to identify the income and substitution effects. Which one is stronger?

If an individual has preferences (x_1,x₂)= x₂² +x₂², graph the indifference curve for U=20 and U=40

You are asked to explain the demand of hamburger, if the price of its substitute product (i.e., hot

dog) increases in the market.

Discuss why entrepreneurs might want to change the price elasticity of demand for their products, and consider the extent to which this is achievable.

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?  

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?

The market for fast food chicken restaurants, like KFC, Chicken Licken and Nandos, are said to be within the category of monopolistic competition. Examine this market for characteristics and behaviours that link them to this type of market structure.

What will be the economic importance of holding inventory for Eskom?

Total revenue and cost function of competitive firm are as follows

R=1400Q

C=Q^3-60Q²+1500Q+1800

1. Calculate the amount of profit contribution.
2. What is break-even level of output?
3. Determine the output level corresponding to 500 unit profit.