Microeconomics Answers

) What is the equilibrium price and quantity of fertilizer in an unregulated, competitive market? (4 marks) b) What is the efficient quantity of fertilizer? (4 marks) c) Suppose government imposes a tax equal to the marginal external cost. What is the equilibrium price paid by consumers and the equilibrium quantity after implementation of the tax? (6 marks) d) At the output level in part (c), how much is the tax? (5 marks) e) How much tax revenue does government collect? (6 marks) f) What is the deadweight loss borne by society if the externality is left uncorrected?

Colgate sells its standard size toothpaste for Rs. 25. Its sales have been on an average 8000 units per month over the last year. Recently, its competitor Sparkle reduced the price of its same standard size toothpaste from Rs. 35 to Rs. 30. As a result Colgate sales declined by 1500 units per month.

Calculate the cross elasticity between the two products.

What does your estimate indicate about the relationship between the two?

a. Budget of Daniel is Rs.700.

He needs to buy sandwiches and juices for a picnic party. The price of 1

sandwich is Rs.35 and that of a juice is Rs.10. draw his budget line.

b. The price of sandwich and

juices got doubled next week. Now how many sandwiches and juices can he buy for

the party on next weekend. Also draw a budget line.

c. Before next weekend his

income increased and now he can spend Rs.1400 for the picnic. Draw the new

budget line.

The demand cure of necessities is inelastic. The demand cure of Luxuries is elastic. For both

goods, suppose producers produce more and supply becomes double

(at each price, Qs doubles).

1. For which product will P change the most?

2. For which product will Q change the most?

Consider the production function Q = 2(KL)0.5

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

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

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

For the following market demand curve:

1. Find marginal buyer’s WTP at Q = 15.
2. Find CS for P = $35.
3. Suppose P decreases to $10. How much will CS increase due to…

●  Buyers who enter the market

●  Existing buyers paying lower price.

In 2005 earthquake has devastating effect on the economy. Alot of factories gets destroyed many people lost their life.Explain WITH the help of demand and supply curves how an earthquake affects the market equilibrium and what is the new equilibrium price and quantity

You are the chief financial officer for a firm that sells digital music players. Your firm has the

following average cost schedule;

Quantity Average total cost

500players $300

501 301

Your current level of production is 500 devices, all of which have been sold. Someone calls,

desperate to buy one of your music players. The caller offers you $450 for it. Should you accept

the offer? Why or why not?

Identify the implicit cost and explicit cost from the given cases; 3-M

a. Payments for labour purchased for outside market.

b. The use by a firm of a warehouse owned by the firm that could be rented out to another

firm.

c. Rent paid for the use of warehouse not owned by the firm.

d. The wages that owner could earn if they did not work for themselves.