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Two consumers (A and B) consume two goods (X and Y) in a pure exchange economy, their preferences and endowment are given as; UA(XA,YA) = XA 0.75YA 0.25 UB(XB,YB) = XB YB WA = (8, 2) WB = (2, 8) (i) Draw an appropriate Edge-worth box showing the endowments. (ii) Is the initial allocation efficient? Explain. (iii)What will be the general equilibrium price ratio and allocation?
currently makes $35,000 per year as an aerobics instructor and will have to give up
this job if she opens the new health spa. If she chooses to open the spa, it will cost
her $200,000 per year in rent and other operating expenses.
How much would she need to make in revenues to earn positive economic
profits?
State the cross price elasticity (of demend). Suppose the price of a good (X) is RM5,
now the price of that good (X) increases by 5%. As a consequence, the demand of
another good (Y) decreases by 10%. What is the cross-price elasticity for the good
Y. Is the good (Y) is a substitue good or a complementary good to the first one?
if the monopolist wants to increase the quantity sold from two units to three units it cuts the price from $16-$12 the marginal revenue equals?
Smaller firms generally enjoy economies of scale as they expand because:
Given utility maximization problem U= Q1Q2 subject to 10Q1 +2Q2=240
a. Derive the Lagrange function
b. Derive the first order conditions
c. Use Cramer’s rule to find the critical values of Q1, Q2 and �
Expert's answer
. A town of 2,000 households constitutes a market for eggs. Current sales are 2400 dozen eggs per week at a price of $1.25 per dozen. 1200 households living on the west side of the river buy1600 dozen eggs and their elasticity of demand is -1.5. The remaining households live on the east side of the river, buy the rest of the eggs and have an elasticity of demand of -3. Calculate the elasticity of market demand curve for the town as a whole.
Illustrate a kinked demand curve and discuss why the demand curve has a kink under Oligopoly. Also explain the discontinuity in the shape of the resulting marginal revenue curve. On what does the extent of this discontinuity depends?
(a) Illustrate with the help of a diagram, higher the price elasticity of supply, larger will be the per unit tax burden borne by the consumers. 5 (b) The demand and supply functions of a good are given by QD = 24 − 3P; QS = 4 + 2P where P, QD and QS denote price, quantity demanded and quantity supplied, respectively. Find the inverse demand and supply functions and the market equilibrium price and quantity.
A Monopoly faces market demand given by Q = 100 – 2P, where Q stands for quantity and P for price. Total cost function is given by C (Q) = 10Q. Find the profit maximizing price and quantity and the resulting profit to the monopoly. Also show that the equilibrium price adheres to the optimal markup rule based on demand elasticity.
