Individual assignment for Introduction to Economics

1. Why do suppliers want to create more inelastic demand relationships in the products
that they sell?

2. A consumer, Mr. Aman is in a state of equilibrium consuming two goods X and Y, with
given prices Px and Py.

(a) What will happen if MUx/Px> MUy/Py?

(b) What will happen if Py falls?

3. A consumer consumes only two goods X and Y. Marginal utilities of X and Y are 4 and 3
respectively. The price of X and the price of Y is Rs 3 per unit. Is the consumer in
equilibrium? What will be the further reaction of the consumer? Give reasons.

4. A consumer consumes only 2 goods X and Y. The marginal utilities of X and Y are 3.
Prices of X and Y are birr 2 and birr 1 respectively. Is the consumer in equilibrium? What
will be the further reaction of the consumer? Give reasons.

5. Explain consumer equilibrium using indifference curve analysis.

6. What is consumer Budget?

7. What are monotonic preferences?

8. Explain Budget constraint. With diagram.

9. Derive the slope of budget line.

10. What leads to change in the budget line?

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 11. Explain Indifference curve analysis with its properties.

12. A consumer wants to consume two goods. The prices of the two goods are Rs 4 and Rs 5
respectively. The consumer’s income is Rs 20.

(i) Write down the equation of the budget line.

(ii) How much of good 1 can the consumer consume if she spends her entire income on that
good?

(iii) How much of good 2 can she consume if she spends her entire income on that good?

(iv) What is the slope of the budget line?

13. Suppose a consumer can afford to buy 6 units of good 1 and 8 units of good 2 if she
spends her entire income. The prices of the two goods are birr 6 and birr 8 respectively.
How much is the consumer’s income?

14. The demand for tickets to an Ethiopian Camparada film is given by D(p)= 200,000-
10,000p, where p is the price of tickets. If the price of tickets is 12 birr, calculate price
Elasticity of demand for tickets and draw the demand curve

A person has $ 100 to spend on two goods X and Y whose respective prices are $3 and $5.
A. Draw the budget line.
B. What happens to the original budget line if the budget falls by 25%?
C. What happens to the original budget line if the price of X doubles?
D. What happens to the original budget line if the price of Y falls to $4?

15. Suppose that the firm operates in a perfectly competitive market. The market price of his

Product is birr 10. The firm estimates its cost of production with the following cost function:
TC = 10q - 4q2 + q3
A. What level of output should the firm produce to maximize its profit?
B. Determine the level of profit at equilibrium.
C. What minimum price is required by the firm to stay in the market?
16. Suppose a given firm operating in a perfectly competitively market.

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TFC = birr 600
TVC = birr 500 and TR = birr 700.
Should the firm stay in the business? What will be you answer if the TR changes to birr 450?

17. Why a firm under perfect competition is a price taker? Show price in a perfectly competitive
Market is determined, using graphs.
17. What is the major objective of a firm under perfect competition? Why?
18. How do you think that the TR of a firm under perfect competition
19. Show how profit is maximized or loss is minimized using short run marginal cost and
marginal revenue curves. Show the area of total profit or loss through the use of average
cost curve.
20. Show how profit is maximized or loss is minimized using total cost and total revenue
curves. And draw the curve of profit from the total cost and total revenue curves.
21. Derive supply curve from short run equilibrium of a firm. Discuss about the situation.
And show the breakeven point and shutdown point?
22. Discuss briefly what determines the decision of a firm to stay in production or stop
operation.
23. Why do firms under perfect competition earn normal profit in the long run?
24. Show how long run equilibrium of a firm and an industry of perfect competition
graphically?
25. How is profit maximized by a firm under perfect competition when:
a. MR > MC b. MC > MR
26. Suppose cost of production of a firm is given by:
TC = 128+50Q-16Q2 +2Q3
a. What amount of the product should be produced to maximize profit of the firm if price
per
b. Unit output is 74? Find the maximum profit or loss.
c. What quantity of the product should be produced if price per unit is 40?
d. Find the maximum profit. What will be the decision of the firm to stay in production or
stop
e. operation? Why?
f. What will be the decision of the firm if price per unit is 10?
g. What is the shut down price level?
h. Determine the supply function of the firm with domain or range of out put

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27. A firm produces 20 units of a good and market price for the good is birr 12 per unit of
output. And it is also known that the firm earns a profit of birr 4 per unit of output. Determine
the total cost of production.
27. Suppose that a firm`s fixed total cost of production is birr 6000. And the variable cost is
birr 30
per unit output. The revenue of the firm is birr 50 per unit output. What will be the quantity of
the good the firm should produce to break even?
28. Given the demand equation Q = 250 – 50p . Determine the total revenue and marginal
Revenue functions. Does this situation occur in a perfectly competitive market? If yes why? If
Not why not?
30. Explain briefly approach of measuring national income accounting