Microeconomics Answers

Can a set of indifference curves be upward sloping? If so, what would this tell you about the two goods?

Also explain why two indifference curves cannot intersect.

What is MRS?

b. Graph and show the concept of MRS.

Each day Mandela, who is in the third grade, eats lunch at school. He only likes liver (L) and onions (N),

and these provide him a utility of;

U(L,N) = ln (LN)

Liver costs $4.00 per serving, onions cost $2.00 per serving, and Mandela’s mother gives him $10.00 to

spend on lunch.

a. Give the equation for Mandela’s budget line. If liver is on the vertical axis, what is the

slope of the budget line?

b. Graph Mandela’s budget line. Place the number of liver servings on the vertical axis and

the number of onion servings on the horizontal axis.

c. On the same graph, draw Mandela’s indifference curve (free hand curve). Show the

concept of tangency and discuss your graph

Draw indifference curves for the given conditions;

a. A consumer dislikes burgers but loves coke. If she offered by someone a burger or coke 

she might drink coke but waste burger.

b. Molly went in a restaurant and ordered pizza with coke because she requires both of the 

goods at the same time.

c. Ash prefers coffee and tea at the same time

For the following market demand curve:

1. Find marginal buyer’s WTP at Q = 15.
2. Find CS for P = $35.

Consider a perfectly competitive industry that is populated by 500 confectionary companies that supply premium chocolate. All companies within this chocolate industry have identical variable costs but – due to ongoing changes in chocolate manufacturers’ insurance policy –pay different one-time insurance premium when enter the chocolate market. Carefully explain whether– under circumstances outlined above – all companies within this chocolate industry would supply the same profit-maximizing quantities of output. Provide necessary formulae to prove your way of reasoning

There are five factors that can cause change in demand. Describe the effect of change in these factors on quantity demand, quantity supply, and thus on the point of market equilibrium.

 1.taste

2.number of buyers

3.income

4.price of related goods

5.consumer expectations?

Is the demand for stereos elastic or inelastic? Why?

Derive the MU function from the following TU function: 𝑇𝑈 = 200𝑄 − 25𝑄 2 + 𝑄 3 From this MU function, draw up a table up to the level of Q where MU becomes negative. i.e (Q = 1, 2, etc). Graph these figures

Suppose you are the economic adviser of a company producing three brands of mobile phones; Nokia 10 , Samsung X and iPhone Z. Suppose further that, your company currently sells 120 units of iPhone Z at ¢800 per unit, 150 units of Samsung X at ¢800 per unit and 200 units of Nokia 10 at ¢100 per unit, but in a bid to maximize profit, the company’s managing director proposes an increase in price of Samsung X from ¢800 to ¢1000 per unit for which quantity demanded is anticipated to fall from 150 to 100 units; iPhone Z from ¢800 to ¢1200 per unit for which quantity demanded is anticipated to fall from 120 to 100 units; and Nokia 10 from ¢100 to ¢200 per unit for which quantity demanded is expected to fall from 200 to 100 units. i. Using the mid-point formula, compute the price elasticity of demand for each brand. (6 marks) ii. From your answer in i, what is the type and economic interpretation of each brand’s value of elasticity. (4 marks)