Microeconomics Answers

Your uncle is thinking about opening a hardware store. He estimates that it would cost Rs.5,000,000 per year to rent the location and buy the stock. In addition, he would have to quit his Rs500,000 per year job as an accountant.

A.   Define opportunity cost.                                                                                             

B.    What is your uncle’s opportunity cost of running the hardware store for a year? If your aunt thinks he can sell Rs. 5,100,000 worth of merchandise in a year, should he open the store? Explain.                                                                                                                      

marginal product

how to obtain the marginal product?

The Various Measures of Cost: Thirsty Thelma’s Lemonade Stand

Quantity

Of

lemonade

s

Fixed

Cost

Variable

Cost

Total

Cost

Average

Fixed

Cost

Average

Variable

cost

Average

Total

Cost

Marginal

Cost

0 $3 $0.00

1 3 0.3

2 3 0.8

3 3 1.5

4 3 2.4

5 3 3.5

6 3 4.8

7 3 6.3

8 3 8.0

9 3 9.9

10 3 12.0

Draw the graphs of TC, AVC, ATC, AFC and MC of the Thirsty Thelma’s Lemonade Stand(20)

Suppose that business travelers and tourists have the following demand for airline

tickets from Lahore to Karachi.

price Quantity demanded

(business travelers)

Quantity demanded

(tourists)

$150 2100 1000

200 2000 800

250 1900 600

300 1800 400

As the price of ticket rises from $200 to $300, what is the price elasticity of demand for

(i) Business travelers

(ii) Tourists

(Use the midpoint method in your calculations.)

1.If the production function of the firm is Q = 50K ^0.5L^0.5   

 a) how will you derive the marginal product?

 b) what is the marginal value product with respect to L and with respect to K?

 c) how will the marginal rate of technical substitution look like for this production function?

2. if Qd = a/b - cP and Qs = d/e + fP, in market equilibrium (Qd = Qs) what is P, Qd and Qs?

As the price of ticket rises from $200 to $300, what is the price elasticity of demand for

(i) Business travelers

(ii) Tourists

(Use the midpoint method in your calculations.)

 price

Quantity demanded (business travelers)

Quantity demanded (tourists)

$150

2100

1000

200

2000

800

250

1900

600

300

1800

400

theory of production

how will you derive the marginal product?

If the production function of the firm is Q = 50K ^0.5L^0.5   

 a) how will you derive the marginal product?

 b) what is the marginal value product with respect to L and with respect to K?

 c) how will the marginal rate of technical substitution look like for this production function?