bonus tasks

8/2/2019 Bonus Tasks

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Bonus tasks for microeconomics (5 %).

1. To reach Paradisevill from Kornvill it takes 1 hour by plane or 5 hours by train. Suppose, a pricefor an air trip is $100 and a train trip costs $60. What type of transportation a person would prefer

if he/she earns:a) $5 per hourb) $10 per hourc) $ 12 per hour

Explain your solution.

(0.5%)

2. Billy is an owner of a small shop in a tiny town close to a megalopolis and he should decide eitherto continue his business or to find a job in the city. His utility depends on daily income, Y, and the

hours devoted to leisure,L. Daily income from a shop is:

Y = 20i i2

where i is hours of work for a shop; and daily income from the job in the city is:

Y = 14jwherej is hours of work in the city.

(1%)

3. Maxs income is $25.2, he has bought 3 kilograms of sugar which costs $2 one kilogram, fourbottles of milk with $2.8 per a bottle, and two loafs of bread with $4 per a loaf. His understandingof the utility of these goods are follows:

Portions Marginal utility ofsugar

Marginal utility ofmilk

Marginal utility ofbread

1 15 12 10

2 10 11 8

3 8 10 6

4 7 7 3

5 5 6 1

Prove that Max could not reach a maximum utility with his budget. Find an optimal consumptionchoice.

(0.3%)

4. Robert had a position as a financier at the ABC company and earned $300000 a year. Now hewants to start his own business. For that, he would like to invest his own savings $500000 and to


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borrow money from the XZY bank - $200000 with an annual interest rate of 20%. He is sure hisbusiness will bring him $1200000 a year, the expenditure for rental payments, wage, and materialswill make $700000 a year. Suppose that the highest interest rate for deposits is 10% a year. What isan expected accounting profit? Could he expect any economic profit? Should he start his ownbusiness?

(0.5%)

5. In the market with perfect competition, a price of a good A is $70. Total expenditure of a firm,which is functioning in this market and producing this good A, could be expressed through afunction: TC = Y3 - Y +3. Find total production and maximum profit of this firm.

(0.7%)

6. Demand function for monopolistic production is YD= 24 2P, total expenditure function:TC = Y

2

+18. Find a price and production volume of that monopolist. Find maximum profit withoutprice discrimination. What profit would the monopolist have if he/she would undertake pricediscrimination?

(0.5%)

7. A firm produces juice boxes (thousands boxes a year) and acts in the market with monopolisticcompetition. A function of a marginal revenue is: MR = 10 - 2Y, and an increasing part of a long-run marginal cost curve is described with a function: LRMC = 2Y-2. If a minimum value of long-run average cost (LRAV) is 6, then what an excess of a production capacity will a firm have?

(0.5%)

8. A firm is a perfect competitor in the goods and labour markets. With a given capital, firmstechnology level could be characterized through a function: Y = 240L 5L2.1. How much labour should be hired if overall price P = 2 and wage rate W = 120?2. What will be labour demand in the given conditions if a firm is: a) a monopolist in the goods

market and labour market; b) a perfect competitor in the goods market and labour market?

(0.5%)

9. A consumer makes a choice between two goods X and Y. Marginal utilities of those goods are inthe table below:

Number of goods MUx MUy

1 20 48

2 16 40

3 14 36

4 12 32


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5 10 24

Find quantities of goods a rational consumer would by if her daily income is $20, and prices forgoods respectively: $2 and $4.

(0.5%)

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