Economics Answers

 A consumers cares only about the total amount of beer he drinks. Therefore he considers two 12-ounce cans of beer to be as good as one 24-ounce bottle. Suppose these are the only two goods available to this consumer. The price of a 12-ounce can is $1.00, while the price of a 24-ounce bottle is $3.00 due to higher packaging costs.

a) Write down his budget constraint and a utility function that captures his preferences. Draw his budget constraint and three of his indifference curves.

b) What is his optimal consumption bundle? Explain your reasoning.

c) Fixing the price of a 24-ounce beer at $3.00, what must we make the price of a 12-ounce beer to have the consumer purchase both goods?

d) At the price you determine in c) what is the best choice? Explain.

2. A consumer has preferences characterized by the utility function u(x1, x2) = In 21 + x2. a) What type of preferences are these? Solve for an expression for this consumer's MRS. Sketch 3 different indifference curves for this consumer.

b) Suppose M = 15, P1 = 1, P2 = 3. Use the tangency condition MRS = - to solve for the optimal amount of good 1. Given this, determine the optimal amount of good 2. Sketch this optimal choice on a graph of the budget set. Include an indifference curve through your optimal point.

c) Now increase income to M = 21. Derive the new optimal choice and show it on a graph as in b)

d) Explain any difference between the points chosen in b) and c)

Debra usually buys a soft drink when she goes to a movie theatre, where she has a choice of three sizes: the 8-ounce drink costs $1.50, the 12-ounce drink $2.00, and the 16-ounce drink $2.25. Describe the budget constraint that Debra faces when deciding how many ounces of the drink to purchase. (Assume that Debra can costless dispose of any of the soft drink that she does not want.

The freezing cold spell at the beginning of 2010 not only increased demand for road salt, (see the additional case study for chapter 6) but it increased demand for gas in the UK. Usage reached 454 cubic metres; the previous record was 449m set in January 2003. The National Grid which is responsible for energy in the UK issued several warnings in a matter of days that demand could outstrip supply and asked supplier so increase the supply. The National Grid also told major gas users, such as power plants, to reduce demand. Big generators, such as E.On, have both gas-fired and coal-fired power stations and are able to choose between the two. In total, 27 large gas users were asked to switch - 12 in the East Midlands and 15 in the North West. 

Questions

1. Illustrate the effect of the cold spell on the demand for gas using a demand curve diagram.

Assume that when you are 25 years old you plan to aggressively save for your retirement by contributing $5,000 a year to a tax-sheltered account. A relative of yours tells you to forget about earning 10 percent or more a year because that is very unlikely to happen (which is true). He also tells you that you should not worry too much about whether you earn, for example, 6 or 7 percent, because it won't make a lot of difference in your final wealth. You decide to see for yourself the various results that could occur by doing some calculations.

a. Fill in the spreadsheet below with the combinations indicated. Determine the difference in outcomes between 9 percent for 40 years and 10 percent for 40 years.

b. Calculate the difference between earning 6 percent and earning 7 percent for 20, 30, and 40 years. How would you respond to your relative? 

    5% 6% 7% 8% 9% 10% 

20 yrs

25 yrs

30 yrs

35 yrs

40 yrs 

Directions: a Statement of Comprehensive Income using the following format and calculated values:

The Mirriam Company has the following statement of comprehensive income balances at the end of the year.

Gross Profit = ₱ 2,580,750

Operating Profit = ₱ 1,554,330

Income Tax Expense = 25% of Operating Profit

Comprehensive Income = ₱ 2,000,000

construct a statement of comprehensive income which contains the determination of net income and comprehensive income for the period.

based on the given accounts below:

The Gelo Corporation has the following balances provided for the year 2020:

TOTAL ASSETS = ₱ 3,500,000

TOTAL LIABILITIES = 2,400,000

TOTAL CURRENT ASSETS = ₱ 2,350,000

TOTAL CURRENT LIABILITIES = ₱ 2,400,000

Directions: Construct a Statement of Financial Position in ACCOUNT FORM.

Accounts Receivable

Notes Payable

Unearned Revenue

Income Tax Payable

Comprehensive Income

Building

Land

Intangible Assets

Noncurrent Receivables

Owner’s Capital

Owner’s Withdrawal

Salaries Payable

Prepaid Expenses

Inventories

Interest Payable

Notes Receivable

Consider a monopolist with the following demand functions for different

market segments

q1= 16 - 0.2P1

q2= 9 - 0.05P2

Where q1 and q2 are the quantities demanded in segments 1 and 2 respectively,

and p1, and p2 are the prices charged in the two segments.

The cost function is C = 50 + 20(q1 + q2)

b) Assume that these conditions are met. Calculate for each market segment

the equilibrium price, quantity and profit.

c) Show that the higher price is charged in the relatively more inelastic

segment of the market.

d) If the monopolist cannot discriminate and it has to charge one price what

price will it charge and what quantity would it produce? What will be the

profit under this scenario?

e) Describe the optimal two-part pricing strategy for the firm. How much

profit does the firm earn from this strategy?