Microeconomics Answers

Suppose Kevin is operating a cake shop at a perfectly competitive market in South Korea and producing at the shutdown point.
a. Draw graphs to show and explain the price and quantity of Kevin’s cakes, as well as his profit.
b. With the graphs drawn in response to question (a), show and explain the long-run adjustment process for Kevin’s cake shop and the cake industry.

Consider a competitive constant-cost industry with many identical firms (i.e. firms with identical U-shaped cost curves). The demand curve in this market is downward sloping and the market is currently in a long-run equilibrium. Assume that there is an increase in demand, ceteris paribus. Compared to the initial long run equilibrium, which of the following statements is true?

A)In the new long run equilibrium price will be higher and each of the firms in the industry will be producing a greater amount of output.
B)In the new long run equilibrium price will be unchanged and each of the firms in the industry will be producing a greater amount of output.
C)In the new long run equilibrium price will be higher and each of the firms in the industry will be earning positive economic profit.
D)In the new long run equilibrium price will be unchanged and each of the firms in the industry will be earning zero economic profit.

Consider a competitive constant-cost industry with many identical firms (i.e. firms with identical U-shaped cost curves). The demand curve in this market is downward sloping and the market is currently in a long-run equilibrium. Assume that there is an increase in demand, ceteris paribus. Compared to the initial long run equilibrium, which of the following statements is true?

A)In the new long run equilibrium price will be higher and each of the firms in the industry will be producing a greater amount of output.
B)In the new long run equilibrium price will be unchanged and each of the firms in the industry will be producing a greater amount of output.
C)In the new long run equilibrium price will be higher and each of the firms in the industry will be earning positive economic profit.
D)In the new long run equilibrium price will be unchanged and each of the firms in the industry will be earning zero economic profit.
E) None of the above.

Firms Tetra and Pak are the only producers of juice cartons (y). Both have the cost function:
C(y) = 2y²
The inverse demand function in the market for juice cartons is as follows:
P = 200 - 2y
Where P denotes the price of one juice carton.

A) Assume the firms behave according to the Cournot oligopoly model. Find the market equilibrium (outputs, prices and profits)

B) What would the market equilibrium be if firm Tetra behaved as a quantity leader instead, according to the Stackleberg model?

A concerned father wants to stop his young son smoking cigarettes. He decides to make his son smoke five full packets at once to convince him to stop.

1. Explain how the law of diminishing marginal utility will support the father’s plan and that his plan may actually work.
2. In your answer, explain all assumptions that you make and why they are important.
3. Do these assumptions apply to only the father’s plan or to the law of diminishing marginal utility in every situation?

Consider a perfectly competitve labour market with two groups of workers differing in number and marginal productivity (measured in extra revenue)

In group A there are 40 workers with a marginal productivity of 9

In group B there are 60 workers with a marginal productivity of 5

Before hiring, employers do not know which group workers belong to

What would be the market wage rate? Illustrate with appropriate diagrams

Demand Estimation
Choose a product of your interest to determine the most important determinants of its demand. You need to develop this into a generic demand function of the form
Qx = a0 + a1 Px + a2 I + a3 Py ……
Explain the;
i- Significance of each of the selected variable (include industry specific variables)
ii- Sign of each of the coefficients (expected/estimated use some secondary data evidence to support this)
iii- Impact/size of each of the coefficient (expected/estimated use some secondary data evidence to support this)

rachel works as a carpenter and earn $ 22 per hour she has a dentist appointment which will take 3 hours .she must take a texi for $15 each way to and from the appointment and the dentist charges $120 for the checkup.calculate the opportunity cost for rachel togo to the dentist.

1. Consider a pure exchange economy with 2 goods

(X and Y) and 2 consumers (A and B) having

utility functions

Consumer A u
A) yA, who is endowed with

(2, 6) of the commodities;

Consumer B u
BUB
who is endowed with

(4, 2) of the commodities.

Compute the market equilibrium price and

quantity combinations of the consumers that will

result in efficient allocation of resources.

Consider an individual with expected utility preferences and Bernoulli utility index u(x)=lnx. Suppose she is facing a lottery L with equal probability of having 2 and 4 yuan. Find a mean-preserving spread of L such that the level of expected utility in L is twice as much as in the new lottery.

Consider an expected utility maximizer with Bernoulli utility index u(x)=〖x 〗^(1-ρ)/((1-ρ)), where ρ>0 and ρ≠1. Assuming her initial wealth is w=1 and she can invest her wealth in two assets. A safe asset gives a net return of 0 and the risky asset gives a net return v>0 with probability 1>π>0.5, and -v with probability 1-π.
Show the proportion of wealth invested in the risky asset is strictly positive.
Find a condition under which the proportion of wealth invested in the risky asset is less than 1.
Assuming the condition you found in (b) holds, find the demand for risky asset. How does it vary with π and v? Comment on your findings.