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Question 1
Which one of the following statements is correct? The demand for the product of a perfectly
competitive firm:
A. slopes downward from left to right.
B. slopes upward from left to right.
C. is perfectly elastic.
D. is perfectly inelastic
State whether you agree or disagree with the following statements. Give
reasons in support of your answers.
a. A competitive firm will shut down its operations in the short run if it earns losses.
b. The expansion path for a Leontiff production function is linear.
c. If a production function has constant elasticity of substitution (CES), its positive
monotonic transformation will also have CES.
d. A production function that exhibits diminishing marginal returns to inputs, necessarily
has decreasing returns to scale also
Public goods and common resources: define them and explain how their
production and use is affected by the allocation of property rights.
The short run supply curve of a company selling its goods on a competitive
market: explain how imposing some assumptions on the firm’s objectives
and on the costs’ behaviour economists derive a relationship between the
price level and the quantity of goods that a firm supplies.
Consumer surplus: define it and explain how economists derive the
concept of consumer surplus imposing some assumptions on the
consumer’s preferences and on its behaviour when choosing the allocation
of limited resources.
1. Complete the following table.
(i) Find out the total product (TP), average product (AP), marginal product (MP) and draw a graph of TP, AP, MP and also explain the stage of production.
(ii) if the fixed price of land is 1000 and the firm pays 750 to each worker then calculate, Fixed cost, variable Cost, Marginal Cost, Average Variable Cost (AVC), Average Fixed Cost(AFC), and Average total cost(ATC).
Labor
Total Product
Average Product
Marginal Product
Average Fixed Cost
Average Variable Cost
Average Total Cost
0
0
1
8
2
18
3
25
4
30
5
33
6
34
For each of the following, determine whether the IS curve, the LM curve, both curves or neither curve shifts. In each case, assume that expected current inflation and future inflation are equal to zero, and that no other exogenous variable is changing.
a. A decrease in the expected future real interest rate.
b. A decrease in the current short-term nominal interest rate.
c. An increase in expected future taxes.
d. A decrease in expected future income.
4 ) Complete the following table.
i ) Find out the total product (TP), average product (AP), marginal product (MP) and draw a graph of TP, AP, MP and also explain the stage of production.
ii ) if the fixed price of land is 1000 and firm pay 750 to each worker then calculate, Fixed cost, variable Cost, Marginal Cost, Average variable Cost (AVC), Average Fixed Cost(AFC), and Average total cost(ATC).
Consider a market in which Bert from problem 4 is the buyer and Ernie from problem 5 is the seller. a. Use Ernie’s supply schedule and Bert’s demand schedule to find the quantity supplied and quantity demanded at prices of $2, $4, and $6. Which of these prices brings supply and demand into equilibrium? b. What are consumer surplus, producer surplus, and total surplus in this equilibrium? c. If Ernie produced and Bert consumed one fewer bottle of water, what would happen to total surplus? d. If Ernie produced and Bert consumed one additional bottle of water, what would happen to total surplus?
Suppose that the price of commodity Y is $1 per unit while the price of commodity X is $2 per unit and suppose that an individual’s money income is $16 per time period and is all spent on X and Y. (a) Draw the budget constraint line for this consumer and (b) explain the reason for the shape and the properties of the budget constraint line in part (a).
