Microeconomics Answers

In the aftermath of a hurricane, an entrepreneur took a one-month leave of absence (with out pay) from her $5,000-per-month job in order to operate a kiosk that sold fresh drinking water.During the month she operated this venture, the entrepreneur paid the government $2,500 in kiosk rent and purchased water from a local whole sale rata price of $1.34 per gallon.Write an equation that summarizes the cost function for her opera- tion, as well as equations that summarize the marginal, average variable, average fixed, and average total costs of selling fresh drinking water at the kiosk. If consumers were willing to pay $2.25 to purchase each gallon of fresh drinking water, how many units did she have to sell in order to turn a profit? Explain carefully.

1. The demand curve for product X is given by
a) Find the inverse demand curve.
b) How much consumer surplus do consumers receive when Px= $35?
c) How much consumer surplus do consumers receive when Px= $25?
d) In general, what happens to the level of consumer surplus as the price of a good falls?

Supposed that labor is the only input (=short run) by a firm in a perfectly competitive market. The firm’s production function is expressed in a table as follows.
labor supply (days) units of output
0 0
1 7
2 13
3 19
4 25
5 28
6 29
7 29

A. Calculate the marginal product for each of additional worker (create your table).
B. Each unit of output sells for $10. Calculate the value of the marginal product of each worker.
C. Compute the demand schedule (for labor) showing the number of workers hired for all wage levels from zero to $100 per day.
D. Graph the firm’s demand curve for labor.
E. What happens to this demand curve if the price of output rises from 10 dollars to 15 dollars?

5. A shoes manufacturing company finds from the sales data of the other manufactures of similar product that the demand functions for the shoes can be expressed as
Q=10,000-20 P
Find:-
a. Number of shoes sold when P=$300
b. Price for selling 5400 pair of shoes
c. Price of zero sales
d. Point elasticity of demand at price $500

Much of the demand for U.S. agricultural output has come from other countries. In 1998, the total demand for wheat was Q = 3244 − 283P. Of this, total domestic demand was QD = 1700 − 107P, and domestic supply was QS = 1944 + 207P. Suppose the export demand for wheat falls by 40%.

U.S. farmers are concerned about this drop in export demand. What happens to the free market price of wheat in the United States? Do farmers have much reason to worry?

Now suppose the U.S. government wants to buy enough wheat to raise the price to $3.50 per bushel. With the drop in export demand, how much wheat would the government have to buy? How much would this cost the government?

In 1998, the total demand for U.S. wheat was Q = 3244 − 283P and the domestic supply was QS = 1944 + 207P. At the end of 1998, both Brazil and Indonesia opened their wheat markets to U.S. farmers. Suppose that these new markets add 200 million bushels to U.S. wheat demand. What will be the free-market price of wheat and what quantity will be produced and sold by U.S. farmers?

Consider a competitive market for which the quantities demanded and supplied (per year) at various prices are given as follows:



Price

Demand (Millions)

Supply (Millions)

60

22

14

80

20

16

100

18

18

120

16

20



Calculate the price elasticity of demand when the price is $80 and when the price is $100.

Calculate the price elasticity of supply when the price is $80 and when the price is $100.

What are the equilibrium price and quantity?

Suppose the government sets a price ceiling of $80. Will there be a shortage, and if so, how large will it be?

There is a high cross elasticity of demand between new and old cars. Discuss the statement by explaining the features of cross elasticity of demand. Also compare and contrast cross elasticity with other types of elasticities of demand

Suppose the demand curve for a product is given by Q = 300 − 2P + 4I, where I is average income measured in thousands of dollars. The supply curve is Q = 3P − 50.

If I = 25, find the market-clearing price and quantity for the product.

If I = 50, find the market-clearing price and quantity for the product.

Draw a graph to illustrate your answers.

Suppose the demand curve for a product is given by Q = 10 − 2P + PS, where P is the price of the product and PS is the price of a substitute good. The price of the substitute good is $2.00