Microeconomics Answers

In Pakistan internet service is ought to be considered as the perfectly competitive industry. Following is the information available for the internet service provider A operating in the market. 

Total output

Total Cost

180

10

280

20

400

30

530

40

670

50

820

60

980

70

1150

a. Briefly discuss the characteristics of the market Service Provider A is operating.​2 Marks

b. If the market price of the fruit is 16​​​​​​6 Marks

i. Find how much output will the firm produce (Show calculations).​2 Marks

ii. Illustrate it graphically​​​​​​​2Marks

iii. Find if the firm is maximizing profit or minimizing loss (show calculations) and highlight the same in the graph drawn in part ii. ​​​​​1 Mark

iv. From your answer in part iii, explain if the firm is operating in the LR or SR. 1 Mark

Suppose that the income elasticity of demand for new houses is 2.3. If consumer incomes increase by 2 percent, you could expect the quantity of new houses to

Assume the marginal utility of good X is 10, the price of X is $5, the marginal utility of good Y is 25, and the price of Y is $25. What should the consumer do to maximize his/her utility?

Buy more X and less Y.

what would we expect to happen to the market when the government imposes a price floor below equilibrium

If a consumers objective function is given by U=X₁^aX₂^b subject to P₁X₁ + P₂X₂ = m. Establish the levelsbof X₁ and X₂ that maximizes the consumers satisfaction.

Describe and draw a situation where long run supply curve might sift upword?

the income elasticity of demand of commodity M, is 0.84 a.interprete the magnitude in the elasticity value b.write the formulae for calculationg such elasticity (define all symbols). c.by how much will demand of commodity M changeif income should decrease by 12.5 percent?

The demand curve for haircuts at Terry Bernard’s Hair Design is Q = 100 – 5P where Q is the number of cuts per week and P is the price of a haircut. Terry is considering raising her price above the current price of $15. Terry is unwilling to raise price if the price hike will cause revenues to fall. a. Should Terry raise the price of haircuts above $15? Why or why not? b. Suppose demand for Terry’s haircuts increases to Q = 100 – 2.5P. At a price of $15, should Terry raise the price of her haircuts? Why or why not?

QUESTION 2

a) Kembang has 6 bags of sweet potato and 18 bagels. Tam Tam, on the other

hand, has 16 bags of sweet potato and 8 bagels. Kembang’s marginal rate of

substitution (MRS) of potatoes for bagels is 6 and Tam Tam’s MRS is equal

to 4. Draw an Edgeworth box diagram to show whether this allocation of

resources is efficient. Justify your answer with an economic suggestion.

(15 marks)

b) A contract curve is a curve in which all points along it is socially desirable.

TRUE or FALSE? Justify your answer clearly. (15 marks)

c) In a hypothetical country named Country Adeng, there are only two goods

produced and consumed: Good 1 and 2. The MRS is 2 and this means, the

consumers give up 2 Good 1 in order to consume one additional unit of Good

2. On the other hand, the MRT is 4. The economic advisors of Country

Adeng suggested to their Prime Minister that the current situation of MRS

and MRT of this country is in a good shape. Are they right? Justify your

answer clearly. (15 marks)

Suppose the utility function for a firm manager is Z=2H1H2 and his income is Y=P1H1 + P2H2. derive the demand equation for H1 and H2.