Microeconomic Theory for Business 代写

Econ 201, Assignment

Microeconomic Theory for Business

Winter 2017

Due: Tuesday, March 28 th , before end of class

Worth 10% of your final grade

Important Information:

Note the due date of the assignment. Late assignments will be accepted at the cost of 10

points per day.

Answer all 7 questions and show all working as marks will be allotted for every stage of

your solution.

Marks will also be allotted for correct labeling, so remember to label the axes as well as

the curves you draw.

Use graphs whenever possible to properly elaborate your explanations.

P a g e | 2

(10 Marks)

1. President DT of the United States has forwarded a bill to congress proposing a $5 per Kg

tax on oranges imported from Mexico. The purpose of the policy is to secure funds for

financing the construction of a $500 million border wall between the US and Mexico.

The Supply of Mexican oranges imported to the US: Q S = 3p, where p is the price per Kg

and Q is the quantity supplied (in million Kg). The Demand for oranges from the US

consumers is Q D = 100 - 2p, where p is the price per Kg and Q is the quantity demanded

(in million Kg).

(a) What effect will this policy have on market price and how will that affect US

consumers of orange?

(b) If this is the only way to secure funds for the construction of the wall, will President

DT be able to realize this electoral promise? Explain using figures from your

calculation.

(c) What percentage of the burden of the tax will be borne by Mexican orange farmers?

(10 Marks)

2. Suppose the market for corn in Canada is represented by the following equations for

supply and demand:

Q S = 2p − 2

Q D = 13 − p

where Q is the quantity in millions of bushels per year and p is the price.

(a) Calculate the equilibrium price and quantity.

(b) Using price elasticity of demand, what will be the effect of a 4% increase in price on

quantity demanded?

(c) If the government imposes a price floor at $7 per bushel, will there be a surplus or a

shortage and how much will this cost the government? Draw a graph to show this.

(5 Marks)

3. The annual accounting statement of revenues and costs for a local flower shop shows the

following:

Revenues $250,000

Supplies $25,000

Employee Salaries $170,000

If the owners of the firm closed its operations, they could rent out the land for $100,000.

They would then avoid incurring any of the expenses for employees and supplies.

(a) Calculate the shop’s accounting profit and its economic profit.

(b) Would the owners be better off operating the shop or shutting it down? Explain.

P a g e | 3

(5 Marks)

4. Jeremy derives all of his utility from consuming milk shakes; he devotes his entire $20

allowance to milk shakes each week. Suppose the price of milk shakes rise from $2 to $4.

Compute Jeremy's Compensating Variation and Equivalent Variation.

(10 Marks)

5. The bolt-making industry in Ontario currently consists of 20 producers, all of whom

operate with the identical short-run total cost curve STC(Q) = 16 + Q 2 , where Q is the

annual output of a firm. The market demand curve for bolts is D(P) = 110 – P, where P is

the market price.

(a) Assuming that all of each firm’s $16 fixed cost is sunk, what is a firm’s short-run

supply curve?

(b) What is the short-run market supply curve?

(c) Determine the short-run equilibrium price and quantity in this industry.

(10 Marks)

6. The firm’s production function is q(K, L) = L β K α , . Let α = 2/3 and β = 1/3. The wage

rate is $4 and the rental rate of capital is $27.

(a) What is the marginal rate of technical substitution of labour for capital (MRTS LK )?

(b) Suppose that the firm wishes to produce 1080 units of the good, what is the lowest

cost at which it can produce this quantity?

(c) What is the amount of capital and labour used at the cost minimization bundle?

(d) Suppose that the price of capital increases, so that now r = $64. The firms still wishes

to produce 1080 units. What is the new cost minimization bundle on inputs for this

firm, and total cost, for this firm?

(10 Marks)

7. A firm’s total cost function is given by the equation:

TC = 4000 + 5Q + 10Q 2

(a)Write an expression for each of the following cost concepts:

(i)Total Fixed Cost

(ii)Average Fixed Cost

(iii)Total Variable Cost

(iv)Average Variable Cost

(v)Average Total Cost

(vi)Marginal Cost

(b) Determine the quantity that minimizes average total cost.

(c) Demonstrate that the relationship between marginal cost and average cost holds.

Microeconomic Theory for Business 代写

Microeconomic Theory for Business 代写