Microeconomics Answers

What affects the price elasticity of demand for a good?

Derive

the MU function from the following TU function:

𝑇𝑈 = 200𝑄 − 25𝑄2 + 𝑄3

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. (10 marks)

Elasticity of apple supply _s                                          3

Own price elasticity of apple  demand        -2.5

Elasticity of pear supply                                  5

Own Price elasticity of [pear demand             -3

Analyze the percentage changes in prices and quantity in the following scenarios

1.     A rise in the price of oranges causes the demand of apples to increase by 15%

Lettuce and spinach are substitutes while lettuce and tomatoes are complements. Lettuce is a normal good. Twenty per cent (20%) of the lettuce crop is destroyed by floods in Mpumalanga. Use graphs throughout to illustrate your answers.

2.1.1 As a result of the floods, you would expect: (3 marks)

(a) the price of lettuce to increase, the supply of lettuce to increase and the quantity of lettuce demanded to decrease

(b) the supply of lettuce to decrease, the price of lettuce to increase and the equilibrium quantity of lettuce to decrease

(c) the price of lettuce to increase and both the quantity of lettuce supplied and the quantity of lettuce demanded to increase

A competitive firm has the following average cost function: 𝐴𝐶 = 𝑦^2 − 8𝑦 + 30 + 5/𝑦. The corresponding marginal cost function is 𝑀𝐶 = 3𝑦 ^2 − 16𝑦 + 30. a) Derive the total cost function, then find the firm’s average variable cost, average fixed cost, and fixed cost. Is this firm in the short run or the long run? How do you know? b) At what quantity is marginal cost equal to average variable cost? At what quantity is average variable cost minimized? The firm will supply zero output if the price is less than what? c) What is the smallest positive amount that the firm will ever supply at any price? At what price would the firm supply exactly 6 units of output?  

The floods that destroyed part of the lettuce crop would have caused: (3 marks)

(a) an increase in the demand for tomatoes

(b) a decrease in the demand for tomatoes

(c) an increase in the quantity of tomatoes demanded

(d) a decrease in the quantity of tomatoes demanded

Use graphs throughout to illustrate your answers.

The floods, that destroyed part of the lettuce crop, would have caused the equilibrium price of spinach to _______ and the equilibrium quantity of spinach to _______Use graphs throughout to illustrate your answers (3 marks)

(a) decrease; decrease

(b) decrease; increase

(c) increase; increase

(d) increase; decrease

The following is a hypothetical example. Wheat production in Namibia rose dramatically in 2018 due to favorable farming conditions. in 2017 quantity demanded was 2.66 million and average price (per bushel) was N$4.70 and in 2018 Quantity demanded was 2.82 million and average price (per bushels) was N$3.72 (a) Using the arc elasticity (midpoint) formula, calculate the price elasticity of demand for wheat.

Instruction(s): Attempt Question All Questions

1. The production function for Ghana Rice is given by Q = 100 KL , where Q is the number of bags produced per hour K is the units of capital employed and

L is the number of workers hired each hour.

a. Calculate the Q = 1000 isoquant for this production function and illustrate it on

a diagram

b. If K = 10 , how many workers are required to produce Q = 1000 ? What is

average productivity of Ghana Rice workers?

c. Suppose technical progress the production function to Q = 200 KL , answer

parts (a) and (b) for this new situation.

MR. jhon is offered an annuity plan for $250000 that will provide him $30000 annually at start of each year @8% p.a how long it will take him to get return?