Scribd Logo
Upload

Welcome to Scribd!

  • Question Two

    Uploaded by

    ABDULLAHI MUSA MOHAMED
    7 views1 page
    a) The production function exhibits increasing returns to scale because both marginal products (MPL and MPM) are increasing in L and M. b) The monopolist faces marginal revenue of MR=15-6q and marginal cost of MC=4. The optimal output is qm=3, price is pm=12, and profits are π=9. Under perfect competition, equilibrium output is q=6, price is p=9, and profits are π=0. c) The solution to the system of linear equations is X=5, Y=10.

    Original Description:

    Economics

    Original Title

    QUESTION TWO

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Report this Document
    a) The production function exhibits increasing returns to scale because both marginal products (MPL and MPM) are increasing in L and M. b) The monopolist faces marginal revenue of MR=15-6q and marginal cost of MC=4. The optimal output is qm=3, price is pm=12, and profits are π=9. Under perfect competition, equilibrium output is q=6, price is p=9, and profits are π=0. c) The solution to the system of linear equations is X=5, Y=10.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
    7 views1 page

    Question Two

    Uploaded by

    ABDULLAHI MUSA MOHAMED
    a) The production function exhibits increasing returns to scale because both marginal products (MPL and MPM) are increasing in L and M. b) The monopolist faces marginal revenue of MR=15-6q and marginal cost of MC=4. The optimal output is qm=3, price is pm=12, and profits are π=9. Under perfect competition, equilibrium output is q=6, price is p=9, and profits are π=0. c) The solution to the system of linear equations is X=5, Y=10.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
    of 1

    QUESTION TWO [20 Marks]

    a) A firm produces quantity Q of breakfast cereal using Labour L and material M with the
    1
    production function 𝑄 = 50(𝑀𝐿)2 + 𝑀 + 𝐿. The marginal product functions for this
    production function are
    𝑀 1
    𝑀𝑃𝐿 = 25( )2 + 1
    𝐿
    𝐿 1
    𝑀𝑃𝑀 = 25(𝑀)2 + 1
    Are the returns to scale increasing, constant, or decreasing for this production function [5
    Marks]

    b) Consider a monopolist facing an inverse demand function 𝑝(𝑞) = 15 − 3𝑞, where q denotes
    units of output. Assume that the total cost of this firm is 𝑇𝐶(𝑞) = 5 + 4𝑞.
    i. Find the monopolists marginal revenue and its marginal cost [2 Marks]
    ii. Find the monopolists optimal output 𝑞 𝑚 , price, and profits[6 Marks]
    iii. Assume now that the market operated under perfect competition. Compute the equilibrium
    output, price, and profits [2 Marks]
    c) Using elimination method, solve the following system of linear equations
    [5 Marks]
    6𝑋 + 2𝑌 = 30
    2𝑋 + 2⁄3 𝑌 = 4

    You might also like