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A company is considering constructing a Flyover bridge over the busiest road to avoid the
traffic. The bridge would cost $2 million to build. The following table shows the
company’s anticipated demand over the lifetime of the bridge:
Price per
Crossing ($)
No. of Crossings
in Thousand
8
7
100
6
200
5
300
4
400
3
500
2
600
1
700
800
i. If the company builds the flyover bridge, what would be its profit maximizing price?
Would that be the efficient output? Give reason.
3. (25 points) Consider two firms out of a competitive industry. They have the following technologies: C1(y) = y^2+2y; C2(y) = 1.5y^2 + 3y. Show these firms’ individual supply functions on a clearly-labelled graph. Construct an aggregate supply function for these two firms on your graph.
New cars are normal good and people’s incomes increase . Simultaneously , auto manufactures must pay more for their worker’s health insurance . What is the effect on price and quantity of new cars ?
"Changes in disposable income lead to moments along a consumption function and changes in well and other factors shift the entire consumption faction" do you agree? Explain
Which of the strategy is currently being used by the Central Bank of Nigeria and how
QUESTION 1
The market demand and supply equations for a product are: QD = 25 - 3P and QS = 10 + 2P, where Q is quantity and P is price.
(a) What are the equilibrium price and quantity for this product?
(b) Formulate the inverse demand function.
(c) If income rises, leading to new demand of QD = 40 - 3P, find new P* and Q*
(d) Now, suppose the government enacts legislation that imposes a price ceiling equivalent to
the original equilibrium price. What is the result of this legislation?
(e) Determine the quantity demanded, the quantity supplied, and the magnitude of the
surplus if a price floor of $9 is imposed in this market.
(f) Determine the quantity demanded, the quantity supplied, and the magnitude of the
shortage if a price ceiling of $1.5 is imposed in this market. Also, determine the full economic price paid by consumers.
Suppose a consumer consuming two commodities X and Y has the following utility function 0.4 0.6 U X Y .
If price of good X and Y are 2 and 3 respectively and income constraint is Birr 50.
a. Find the quantities of X and Y which maximize utility.
b. Show how a rise in income to Birr 100 will affect the quantity of X and Y.
c. Calculate the maximum utility for case “b”.
If wages and prices are flexible people form their expectations rationally and anticipate policy incorrectly what happens
Given utility function: U(x, y) = X1/3Y2/3, Px = 2, Py = 5 and M = 400, find:
a. The demand equation for X and Y.
b. The utility maximizing levels of X and Y.
c. The maximum utility.
d. The MRSx, y at the optimum level.
With the help of the Solow growth model diagram, explain the effects of shocks on steady state per worker capital and output.
