1. Suppose we have the following market supply and demand schedules for
bicycles:
Price
€
100
200
300
400
500
600
a.
b.
c.
d.
Quantity
Demanded
70
60
50
40
30
20
Quantity
Supplied
30
40
50
60
70
80
Plot the supply curve and the demand curve for bicycles
What is the equilibrium price of bicycles?
What is the equilibrium quantity of bicycles?
If the price of bicycles were €100, is there a surplus or a shortage? How many units of
surplus or shortage are there? Will this cause the price to rise or fall ?
2. The above figure shows the demand curve for crude oil. If the market price is $10 a
barrel, what is the price elasticity of demand?
3. Joe runs a small boat factory. He can make ten boats per year and sell them for €25,000
each. It costs Joe €150,000 for the raw materials (fiberglass, wood, paint, and so on) to
build the ten boats. Joe has invested €400,000 in the factory and equipment needed to
produce the boats: €200,000 from his own savings and €200,000 borrowed at 10
percent interest. (Assume that Joe could have loaned his money out at 10 percent, too.)
Joe can work at a competing boat factory for €70,000 per year.
a.
What is the total revenue Joe can earn in a year?
b.
What are the explicit costs Joe incurs while producing ten boats?
c.
What are the total opportunity costs of producing ten boats (explicit and implicit)
d.
What is the value of Joe's accounting and economic profit?
e.
Is it truly profitable for Joe to operate his boat factory? Explain.
4. The cost function of competitive firm is TC = 20 + 5Q2. The product's market price is 30
AZN. Please find the firm's profit
5. If the inverse demand curve a monopoly faces is p = 100 - 2Q, and MC is constant at 16, then
the deadweight loss from monopoly equals?
1. Suppose the supply function for X good is expressed as QX = - 20 + 4Px. If the price of X
good increased from 8 AZN to 10 AZN how and how much producer surplus will change
2. Suppose the Daily News estimates that if it raises the price of its newspaper from €1.00 to
€1.50 then the number of subscribers will fall from 50,000 to 40,000. Answer the following
questions
a. What is the price elasticity of demand for the Daily Newspaper when elasticity is calculated
using the midpoint method?
b. Based on your answer, is the demand for the Daily Newspaper elastic or inelastic?
c. If the Daily News's only concern is to maximize total revenue, should it raise the price of a
newspaper from €1.00 to €1.50? Why or why not?
3. The table below shows the weekly relationship between output and number of workers
for a factory with a fixed size of plant. P= 10$: w=100$
Number of
Workers
0
1
2
3
4
5
6
7
8
Output
0
50
110
300
450
590
665
700
725
9
10
710
705
a. Calculate the marginal product of labor.
b. At what point does diminishing returns set in?
c. Calculate the average product of labor.
d. Find out optimum level of variable input usage
4. A perfectly competitive firm has total revenue and total cost curves given by:
TR = 100Q
TC = 5,000 + 2Q + 0.2 Q
a.
Find the profit-maximizing output for this firm.
b.
What profit does the firm make?
2
5. If the inverse demand curve a monopoly faces is p = 100 - 2Q, and (𝑞) = q2 / 2 . Calculate:
a. The optimal price, quantity, for this firm;
b. The optimal profit, Lerner index and demand elasticity;
c. The deadweight loss from monopoly.
1. Suppose the demand and supply curves for rice in Japan are given by the following equations:
QD = 120 - 30P
QS = 40 + 10P
Where QD = million tons of rice the Japanese would like to buy each year; QS = million tons of
rice Japanese farmers would like to sell each year; and P = price per ton of rice (in hundreds).
Price per ton
Quantity demanded
Quantity supplied
0.5
-
-
1.0
-
-
1.5
-
-
2.0
-
-
2.5
-
-
a. Fill in the following table:
b. Use the information in the table to find the equilibrium price and quantity.
c. Graph the demand and supply curves and identify the equilibrium price and quantity.
2. The initial price of a cup of coffee is $1, and at that price, 400 cups are demanded. If the price
falls to $0.90, the quantity demanded will increase to 500.
a) Calculate the (arc) price elasticity of demand for coffee.
b) Based on your answer, is the demand for coffee elastic or inelastic?
c) Based on your answer to a., if the price of coffee is increased by 10%, what will happen
tothe revenues from coffee? Carefully explain how you know.
3. The information below is for Bob's blue jeans manufacturing plant. All data is per hour.
Complete the table. Note the following abbreviations: FC (fixed cost), VC (variable cost),
TC (total cost), AFC (average fixed cost), AVC (average variable cost), ATC (average total
cost), MC (marginal cost).
Quantity
FC
VC
0
1
2
3
4
5
6
7
8
9
10
16
16
16
16
16
16
16
16
16
16
16
0
18
31
41
49
59
72
90
114
145
184
TC
AFC
AVC
ATC
MC
4. Suppose there are 1000 identical wheat farmers. For each, TC = 10 + q 2. Market demand is Q
= 600,000 - 100p. Derive the short-run equilibrium Q, q, and p. Does the typical firm earn a
short-run profit?
5. Suppose a monopolist has TC = 100 + 10Q + 2Q2, and the demand curve it faces is P = 90 -
2Q. What will be the price, quantity, and profit for this firm?
1. Annual demand and supply for the Entronics company is given by:
QD = 5,000 + 0.5 I + 0.2 A - 100P, and QS = -5000 + 100P
where Q is the quantity per year, P is price, I is income per household, and A is
advertising expenditure.
a) If A = $10,000 and I = $25,000, what is the demand curve?
b) Given the demand curve in part a., what is equilibrium price and quantity?
c) If consumer incomes increase to $30,000, what will be the impact on equilibrium price
and quantity?
2.The table below provides the demand schedule for motel rooms at Small Town Motel. Use the
information provided to complete the table. Answer the following questions based on your
responses in the table.
Price
€
20
40
60
80
100
120
Quantity
Demanded
24
20
16
12
8
4
Total
Revenue
% Change in
Price
% Change in
Quantity
Elasticity
a. Use the midpoint method to calculate the percentage changes used to generate the elasticities
b. Over what range of prices is the demand for motel rooms inelastic? To maximize total
revenue, should
Small Town Motel raise or lower the price within this range?
c. Over what range of prices is the demand for motel rooms unit elastic? To maximize total
revenue, should Small Town Motel raise or lower the price within this range?
3. Consumer utility function is, Uxy = 10 x1/2 y1/2. The price of X good 10 AZN and Y good 20
AZN. If consumer income is 500 AZN, find and show graphic description how much
consumer can buy X and Y good.
4. Total cost function in competitive firm is TC = 27+ 3Q2. If firm gets normal profit please find
the average total cost of this firm
5. A monopolist has demand and cost curves given by:
QD = 1000 - 2P
TC = 5,000 + 50Q
a. Find the monopolist's profit-maximizing quantity and price.
b. Find the monopolist's profit.
1. Suppose that you have the following demand and supply curve for sneakers:
Qd = 400 – 3P
Qs = 200 + 2P
a) Solve for the equilibrium price and quantity. (3 points)
b) Calculate consumer expenditures on sneakers (3 points)
c) Would a 5% increase in price (due to external factors) cause consumer expenditures to
rise or fall? Explain.
2. A sporting goods store has estimated the demand curve for a popular brand of running shoes as
a function of price. Use the diagram to answer the questions that follow.
a. Calculate demand elasticity using the midpoint formula between points A and B, between
points C and D, and between points E and F.
b. If the store currently charges a price of $50, then increases that price to $60, what happens to
total revenue from shoe sales (calculate P * Q before and after the price change)? Repeat the
exercise for initial prices being decreased to $40 and $20, respectively.
3. Consumer utility function is, U(XY) = X 0.75 Y 0.5. The price of X good 2 AZN and Y good
4 AZN. If consumer utility is maximum and consumer buy 12 unit X goods, find how
much consumer can buy Y goods
4. A perfectly competitive firm has the cost function TC = 1000 + 2Q + 0.1 Q2. What is the
lowest price at which this firm can break even?
5. A monopolist's demand function is P = 1624 - 4Q, and its total cost function is
TC = 22,000 + 24Q -4Q2 + 1/3 Q3, where Q is output produced and sold.
a) At what level of output and sales (Q) and price (P) will total profits be maximized?
b) At what level of output and sales (Q) and price (P) will total revenue be maximized?
c) At what price (P) should the monopolist shut down?