ECONOMICS INDIVIDUAL ASSIGNMENT FOR FRESHMAN STUDENTS (10%)

Note: Copying from other makes all value to be zero

Due date will be 25 July, 2022.
Part I: Say True if the statement is correct and False if the statement is
incorrect (0.5 Pt. each)

1. In some interval though average variable cost is increasing average cost decreases
because change in average fixed cost is greater than change in average variable cost.
2. Expansionary fiscal policy is implemented when there is excess demand over supply in
the economy.
3. The difference between gross domestic product and gross national product is that the first
answers the question ‘’who produces the product’’.
4. Inflation is defined as both temporary and permanent increase in individual price of a
commodity.
5. Shut down decision of a perfectly competitive from is a point where minimum of average
cost is equal to market price.

Part II: (Workout questions) provide and Show all the necessary steps with Exact Answers

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1. Suppose an inverse demand function for economics book is given as ( )
is, where p is the price of a book and Q is quantity demanded. If the price of tickets is 75
birr, calculate price elasticity of demand for tickets and interpret the result, and draw the
demand curve. ( 1.5 Points)
2. Assume a consumer consumes two commodities. These are Coca-Cola (x) and pizza (y)
measured as the number of units purchased. Further assume utility function is given as
( ) and the price of Coca-Cola and pizza are 20 and 100 birr respectively.
A consumer has an income of 1000 birr. Based on the given information answer the
following: (1 Points Each)
A. Compute the level of Coca-Cola and pizza which maximizes consumer’s utility and
show graphically
B. Compute marginal rate of substitution between pizza and Coca-Cola
C. If the price of pizza decreases to 75 and price of Coca-Cola increases to 30 birr, what
happens on equilibrium?

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3. Suppose a certain contractor wants to maximize  from building one bridge. The
contractor uses both labor and capital, and efficient combinations of Labor and capital
1 1
that are sufficient to make a bridge is by the function 0.25 L 2 K 2 , if the prices of labor
(w) and capital (r) are $ 5 and $ 10 respectively. ( 1 Points Each)
A. Find the least cost combination of L and K
B. compute the minimum cost of production
C. compute marginal product of labor and capital at their cost minimizing levels

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