Microeconomics Answers

With the aid of a clearly labeled diagram, illustrate the difference between; i.A competitive firm making abnormal profits and subnormal profits (10 marks) ii.A monopolist making normal profits and supernormal profits (10 Marks) iii.What are the conditions for profit maximization? (5marks) 

A competitive firm is producing the level of output that maximizes its profits. Subsequently, its variable costs decrease. To maximize profits, the firm should

A) decrease its output. B) shut down.

C) not change its output. D) increase its output.

With graphical illustrations of the market structures, explain

a) the case of profit maximizing firm in the short run

b) the case of a loss making Monopolistic competitive firm in the long run

With graphical illustrations of the market structures, explain

a) the case of profit maximizing firm in the short run

b) the case of a loss making Monopolistic competitive firm in the long run

If TP = 8L2-0.2L3 based on this function;

A. Find the value of L that maximizes output

B. How many workers can maximize an extra production?

C. Calculate the value of labor that maximize APL

D. Find the maximum value of APL and MPL

E. Calculate the maximum production

A firm operating in a perfectly competitive market has to sell

all its output at the price of $10 per unit. Its marginal cost

function is given by Q + 4 and the total fixed cost is 1.

Determine;

A. The profit maximizing output level.

B. The level of supernormal profit if any.

A monopoly firm is faced with the following demand function

P = 26 – 0.5Q. The Marginal Cost function for the firm is given

by 6 + 6Q and the total fixed cost is 4.

Determine;

a) The profit maximizing output.

b) The level of supernormal profit if any.

c) The output level at the break-even point

Assume that the marginal cost of a competitive firm is given by;

MC = 6Q2 – 4Q – 12 and the marginal Revenue of the firm is given by,

MR = – 2Q. Then find,

A) Functions of TVC, AVC, AC and AR

B) The firms profit maximization level of output.

C) How much profit firm can generate?

D) Does the firm generate profit or incur loss at 5 units of output?

Master Paint is a company that produces paint and discharges the waste into the Limpopo River. The Farmers who use the water for irrigation down-stream have been complaining about the contamination of the water. The quality of crops on these farms has deteriorated significantly over the past seasons resulting in financial loses. Is there a case for taxing Master Paint? Discuss and Illustrate your answer with diagrams

2. Education and Health produce a positive externality (they confer positive external benefit) and this has been used as a justification for having the government subsidize education and health to internalize the externality in South Africa. From a theoretical perspective, is there a case to be made for subsidizing health and welfare in South Africa? Use diagrams to illustrate your answer. There are 5 marks for a clearly labelled diagram