Microeconomics Answers

Under monopolistic competition firms produce _______ output

(a) Explain any THREE (3) characteristics of a firm in a perfectly competitive industry.
(b) Discuss any FOUR (4) barriers to entry imposed by a monopolist.
(c) Distinguish between Positive Externalities and Negative Externalities. Provide ONE (1)
example for each.

Yesterday,the price of envelopes was 3$ a box, and julie is now willing to buy 8 boxes. Is julie's demand for envelopes elastic or inelastic ? What is julie's elasticity of demand ?

1. The general demand function for good A is
Qd= 600-4PA-0.03M-12PB+15T+6PE +1.5N
where Qd = quantity demanded of good A each month, PA = price of good A, M = average household income, PB= price of related good B, T = a consumer taste index ranging in value from 0 to 10 (the highest rating), PE = price consumers expect to pay next month for good A, and N = number of buyers in the market for good A.
a. Interpret the intercept parameter in the general demand function.
b. What is the value of the slope parameter for the price of good A? Does it have the correct algebraic sign? Why?
c. Interpret the slope parameter for income. Is good A normal or inferior? Explain.
d. Are goods A and B substitutes or complements? Explain. Interpret the slope parameter for the price of good B.
e. Are the algebraic signs on the slope parameters for T, PE, and N correct? Explain.
f. Calculate the quantity demanded of good A when PA = $5, M = $25,000, PB = $40,T = 6.5, PE = $5.25, and N = 2,000.

A business firms sells a good at the price of Rs 450.The firm has decided to reduce the price of good to Rs 350.Consequently, the quantity demanded for the good rose from 25,000 units to 35,000 units. Calculate the price elasticity of demand.

Suppose Ace Albert spends all his personal income on only three commodities X, Y, Z. Assume that we know that X and Y are normal commodities and that X is a substitute for Y( in the sense that if Ace consumes more of X, he must consume less of Y in order to remain at the same level of satisfaction, ie on the same indifference curve)
i. Explain how the substitution and income effects operate on commodities X and Y when the price of X falls, ceteris Paribus
Explain under what condition will the cross elasticity of the two commodities be negative

c) Walter is a car manufacturer and he regards his business as highly competitive because he is keenly aware of the rivalry of other car manufacturers in the market. As expected of any business the company takes part in vigorous advertising campaigns seeking to convince potential buyers of the superior quality and better style of the Walter automobiles and the company reacts very quickly to claims of superiority by rivals. Is this the meaning of perfect competition from the economist’s point of view?

Tomas lives on sweet potatoes and green bananas, the price per lb of sweet potatoes (ps) is 1.50 and the price of lb of green bananas (pg) is 2.00 his income is 1500 per month but only allocates 30.00 for food consumption.

A) identify tomas budget constraint equation and illustrate his budget line on a graph

B) if the price of sweet potatoes increases to 10% ,illustrate the effects and state the new budhet constraint equation.

C) calculate the price of sweet potatoes assuming that he allocates 50% of his budget when the price was 1.50 and 70% when the price increse.