Addis Ababa Science and Technology University

College of Natural & Social Sciences

Introduction to Economics (Econ 101) Assignment II

Instruction:

 Attempt all the three questions showing all the necessary explanations and steps
 The assignment will have a total mark of 10%.
 An exact copy of each other will result in a zero mark for all involved groups.
 Due date is a week after the assignment is collected
1. Suppose by consuming Hamburger and Coca-Cola you get satisfaction represented by a
utility function given as U = Ha Cb. The price of Hamburger is P h, the price of Coca-Cola is
Pc and the total amount of income that you have is M. (label coca cola on the x-axis)
a. Formulate the budget line equation (1 Point)
b. Show the budget constraint graphically (1 Point).
c. Find the marginal rate of substitution between Hamburger and Coca-Cola (1 Points).
d. Find the combination of Hamburger and Coca-Cola that maximizes your satisfaction
(1 Points).
e. Find the maximum satisfaction (1 Point).
2. Consider the following short run production function:
Q = 6L2 - 0.4L3

a. Find the value of L that maximizes output (1 Point)

b. Find the value of L that maximizes marginal product (1 Point)t
c. Find the value of L that maximizes average product (1 Point)
1 3
3. Given a short run cost function as T C  Q  2Q  60Q  100 , find
2

A. Minimum of AVC and MC. (1 Point)

B. The minimum price that the producer is willing to accept to stay in operation? (1
Point)