Microeconomics Answers

Considering the importance of risk, which alternative should an investor choose?

A sales tax of $1 per unit of output is placed on a particular firm whose product sells for $5 in a 

competitive industry with many firms.

a. How will this tax affect the cost curves for the firm?

b. What will happen to the firm’s price, output, and profit?

c. Will there be entry or exit in the industry?

Microeconomics focuses on?

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. (2marks)

. 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