Institute of Business Management

Microeconomics

Course Instructor: Irfan Lal Total Marks: 10

Due Date:
Page: 1/2 Assignment
Assignment
------------------------------------------------------------------------------------------------------------------------------------------

Q#1 An individual lives in a world where there are only two goods X and Y his
utility function is U=50X-0.5 X2 +100Y-Y2. The price of X is 4 and his income per
period is 672.

a) Derive his demand function for Y

b) If the price of Y is 14, how much X does he buy?
c) At this equilibrium, calculate his point income elasticity of demand for X?
d) The individual is given the opportunity to join a society where member can
buy Y at price of 5. What is the maximum amount that he would be prepared
to pay in membership dues each period to join the society?

Q#2 The equation for a production isoquants which depicts the different
combination of inputs K and L that can be use to produce a specific level of output
is 16K1/4L3/4= 2144

a) Find the slope of iso-quant?

b) Evaluate the MRTS at K=256, L =108

Q#3 Given the demand for bee.

Qb =4850- 5Pb +1.5Pm+0.1Y

Where Y= 10,000 Price of beef 200 and price of mutton is 100.

Find

a) Income elasticity of demand of beef

b) Cross elasticity of demand of beef
Q#4 Prove with the help of derivative

a) MR is less than price

b) MR curve is half of the demand curve
c) APL is inverse of AC
d) Prove that weighted sum of income elasticities of all goods must be equal to
1

Q#5 a monopolist produces from a single plant but sells it in two markets. The
cost and demand curves are given by the following equations:

TC= Q2+10Q Q1= 32-0.4P1 Q2= 18 – 0.1P2

a) The firm is able to practices price discrimination between the two markets
Calculate the profit maximizing values for price, output and total pure
profit?

Q#6 A typical firm in a perfectly competitive industry has the following long-run
total cost function

LTC = Q3-60Q2+ 1500Q

a) Where cost is measured in dollars and Qis output per month find AC and
MC
b) If the firm can sell it output at price of P=975, how much will it produce to
maximize profit?
c) If the market demand curve is P = 9600 – 2Q, how many firms there be in
the industry in long run equilibrium?