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3. What will be the maximum utility of a person given the following utility function?
U= -4Q2+80Q
The Department of Agriculture of Economica (DAE) administers the floor price of milk at $4 per pound of milk. To support the price of milk at the price floor, the DAE had to buy up the surplus.
Suppose the Economica’s market demand and supply of milk are as given below:
Q = 120 – 20P (Market demand)
Q = 20P (Market supply)
Refer to the above-market demand and supply equations to answer the following questions.
i) Use the equations to draw the market demand and supply curves and determine the
equilibrium quantity and equilibrium for milk.
a) Test the significance of the coefficient of education and interpret the coefficient of education.
Can specialization in production and mutually beneficial trade be based solely on a difference in tastes between two nations? How is this different from the more general case?
under what condition will a firm shut down temporarily
Why is there incomplete specialization in pro- duction (even in a smaller nation) with increasing opportunity costs? How are the results under increasing costs different from the fixed-costs case?
Why does specialization in production with trade proceed only up to the point where relative commodity prices in the two nations are equalized? How is the equilibrium-relative commodity price with trade determined?
What is meant by the equilibrium-relative commodity price in isolation? How is this price determined in each nation? How does it define the nation’s comparative advantage?
What difficulties arise in the use of community indifference curves in trade theory? How can these difficulties be overcome?
What does a community indifference curve measure? What are its characteristics? What does the slope of an indifference curve measure? Why does it decline as the nation consumes more of the commodity measured along the horizontal axis?
