Microeconomics Answers

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

The utility-maximizing rule is to choose the basket of goods that has the highest marginal utility of each good in the basket.

a.

False.

b.

True.

Given the production function:

 Y = 10 + 5X₁ – 0.2 X₁²

a)  Define the functions for average product and marginal product.

b)  Compute the maximum level of production of Y and the corresponding    level of input X_1.

c)        Given the price of Y = R3.75/unit and that of X₁ = R1.50/unit, algebraically compute the maximum profit level of input and output.      

Suppose that the demand and supply functions for good X are

 P=6.25 -1/8 Qd

 P=1.75 + 1/10 Qs

a. What are the equilibrium price and quantity?

b. What is the market outcome if price is 2.75? What do you expect to happen? Why?

c. What is the market outcome if price is 4.25? What do you expect to happen? Why?

d. What is the effect of a price ceiling of 3?

e. What happens to equilibrium price and quantity if the demand function becomes P=7.375 -1/8 Qd

f. What happens to equilibrium price and quantity if the supply function becomes

 P=4 +1/10 Qs

(demand is P=6.25 -1/8 Qd)