Microeconomics Answers

Tom is a full-time lecturer at a private higher education institution and is considering a career in carpentry. He wishes to pursue a career in carpentry (a childhood dream) which he has studied part-time and is now equipped to take on clients. In his current position he earns a rate of $1000 per day and if he were to pursue a career in carpentry he would earn $800 per day. Due to the flexibility of the employment conditions at the higher education institution he works for, Tom can negotiate the number of days he works at and will receive a rate of remuneration based on the number of days worked.
1. Construct a production possibility frontier to illustrate Tom’s earnings potential between the two careers if initially he was not working as a carpenter, then he worked one week per month, then two, then three and finally four weeks per month (assuming only four weeks in a month).

Question 6. Consider a perfectly competitive market. The equilibrium price is 12. The equilib- rium quantity is 440. The supply curve is Q (P ) = 200 + 20P . Which of the following could be the demand curve in this market?
a) Noneoftheotheranswersiscorrect.
b) Q(P)=500−5P
c) Q(P)=300−10P
d) Q(P)=1000−10P

Suppose the market demand can be separated into two distinct markets, where inverse demand function of the two markets are Q1 = 9 -0.05P1 and Q2 = 16 -0.2P2 , respectively. The monopolist’s cost function is C = 35 + 20Q, where Q is the total output of the monopolist.
a. Determine the equilibrium prices and quantities in each market and the overall profits that result from the actions of a price-discriminating monopolist.
b. Determine the price elasticity of demand in each market, evaluated at the equilibrium prices and quantities.
c. What is the relationship between the price elasticity and demand in each market and the prices prevailing in each market? Explain the theory and intuition .
d. Draw a graph to show how the price and quantities are determined in each market.

Q. 6) There are substitutes for the Kindle. Sony (Reader), Barnes & Noble (Nook), and others make e-book readers. Presumably these companies are also negotiating with textbook publishers. Each e-book reader uses its own format. When you buy an e-book for your Kindle, don’t expect to be able to read it on a Nook. Thus the e-books and the specific e-book reader are perfect complements.

But the serious competition is likely to come from an unexpected direction: tablet computers. Apple’s iPad has been a major success. The iPad includes iBooks, Apple’s version of an e-book reader.

Question: There is obviously competition in this market. What effect is increased competition likely to have on the price of books offered as e-books? What effect will that have on the price of paper books?

The demand function for product X is: Qd = 600 – 20Px + 0.02Y – 5Pr
The supply function is: Qs = –300 + 10Px
Where:
Qd = the quantity of X demanded
Qs = the quantity of X supplied
Px = the price of product X
Y = the average consumer income
Pr = the price of the related product R

If Y = R35 000 and Pr = R20, draw the precise demand curve for
product X

Minnie’s Mineral Springs is a single-price monopoly. Columns 1 and 2 of the table set out the market demand schedule for Minnie’s water and columns 2 and 3 set out Minnie’s total cost schedule.
1. Calculate Minnie’s marginal revenue schedule and draw a graph of the market demand curve and Minnie’s marginal revenue curve. Explain why Minnie’s marginal revenue is less than the price.

Price
(dollars per bottle) Quantity demanded
(bottles per hour)
Total cost
(dollars per hour)
10 0 1
8 1 3
6 2 7
4 3 13
2 4 21
0 5 31
2. At what price is Minnie’s total revenue maximized and over what range of prices is the demand for water elastic? Why will Minnie not produce a quantity at which the market demand is inelastic?
3. Calculate Minnie’s profit-maximizing output and price and economic profit.

Why are fish in the ocean an example of a resource that suffers from the tragedy of the commons but cattle grazing in a farmer's pasture do not suffer from the tragedy of the commons?

Suppose the minimum wage is above the equilibrium wage in the market for unskilled labour. Using relevant diagrams and hypothetical numbers of the unskilled labour market show the potential impact on the labour market

1. What will decrease an individuals employment's rent?
2. What will increase an individuals employments rent?
3. How do you define employment rent?
4. What are the characteristics of a firm contract?
5. What are the potential solutions to the principal agent problem?

The demand for ice cream cones is P=1600 and Qd is 2 The supply of ice cream cones is P =400 and Qs is 1. The price of a cone is expressed in cents, and the quantities are expressed in cones per day. To find the equilibrium price (P*) and the equilibrium quantity (Q*), substitute Q* for QD and QS and P* for P.