Microeconomics Answers

1.    John is a School of Agriculture graduate and consumes 2 goods: Yoghurt and Bread. Akua also earns a typical student income from the parents, GHS 400 a month. She can either spend it all on Yoghurts and get 50, or she can spend it all on Bread and get 200 loaves.

a.      Given this information, construct the equation for John’s Budget Line.

b.      John gets a research grant and her income increases to GHS 800 per month. What is the new equation of her budget line? What if income stays constant at GHS 400 and the price of Yoghurts increase to GHS10?

c.     Assume that prices are the same as used in part a. If the marginal utility of a Yoghurt is 20, what is the marginal utility of Bread if she is maximizing her utility?

1.    DBS Farms is a producer and retailer of farm products. DBS main products are Mangoes, Pawpaw and Pineapples. The current price of the Mangoes per Kilogram is GHS 50, the Pawpaw/Kg is GHS 80 and the Pineapple is GHS 40. This year the DBS Farms sold 10,000 kgs of Mangoes, 20,000 kgs of Pawpaw and 1 million kgs of Pineapples. In an attempt to improve revenue, the managers of the firm have decided to increase all prices by 10%. Market research has suggested that the price elasticity of demand for each product is: Mangoes: - 1.5; Pawpaw: -2.5; Pineapples: - 0.6. You have been asked to evaluate the planned price increases.

a.      Comment on the planned price changes.

1. Would a 10% price reduction have been better for some or all of the products?

An exclusive Yoghurt manufacturer sells 4,000 gallons per month at a price of 40 dollars each. when the price is reduced to 30 dollars sales increase to 6,000 gallons per month.

a. Calculate the price elasticity of demand for the Yoghurts over this price range.

b. Is demand elastic, unit elastic or inelastic?

c. Calculate the change in revenue due to the change in price.

What kind of market structure is the online food delivery service platform (DoorDash, Uber Eats, Menulog) operating in? Specifically, are the markets an oligopoly structure or perfectly competitive structure and why? Many sources claim that there are low barriers to entry and consumers are extremely price sensitive so does that make them price setters instead of price takers and does this disprove claims that they're in a perfectly competitive market? In the context of the food delivery service market, who are the producers and consumers (would it be the diners and restaurants they are partnered with?) and individuals who demand for the meal delivery service? It is a bit confusing to comprehend as many companies are intermediaries and its platform-customer service and they're a three-sided marketplace involving restaurants, customers and food delivery workers.

Thank you!

1. The demand and supply function for a good I start given as Q=3_2p and Q=20+2p.What will be the equilibrium price?

The consumer utility function for mango tree and orange tree is given U=q1q2, the price for mango tree is $40.00 and orange is $20.00. The consumer income for the period is $120.00. Determine the quantities of mango tree and orange tree which should be purchased in order to maximize derived utility?.

Let’s make a situation that you are working as a firm owner and there is shortage in the market (shortage in terms of the commodity you are producing) then what strategy you will opt to tackle this situation and how to earn maximum profit?

It is due to the common ritual of hoarding and black marketing that price of

sugar in Pakistan is increased almost as double to its previous price in the

Holy month of Ramzan. Unfortunately, due to this, producers are earning

major profits because they are supplying more sugar at higher prices while

the demand of sugar is also increasing day by day. Do you think that such

scenario prevails in economics? If yes, than review this scenario in pure

Economic Perspective? Justify your answer by using appropriate diagram

and table.

Consider the production function Q = 2(KL)^0.5

a)     What is the marginal product of labour and capital (1 marks)

b)     What is the marginal rate of technical substitution of labor for capital (2 marks)

c)     What is the elasticity of substitution at a point K = 1, L = 1 if we increase K by one unit? (2 marks)

Terry’s utility function over leisure (L) and other goods (Y ) is U(L, Y ) = Y + LY. The associated marginal utilities are MU_Y = 1 + L and MU_L = Y. He purchases other goods at a price of $1, out of the income he earns from working. Show that, no matter what Terry’s wage rate, the optimal number of hours of leisure that he consumes is always the same.