Assignment No. 1
All questions are obligatory. Give answers to the subsequent questions briefly.
Outline briefly
a. How people make decisions?
b. How they interact?
c. How economy as a whole works?
1. Give three examples of significant tradeoffs which you face in your everyday life.
2. What is the role of incentives in your life?
3. How inflation and unemployment are related in the short run?
4. What is the opportunity cost of seeing a movie?
5. Draw a circular flow diagram and show how households and firms interact with each other.
6. Draw a production possibility frontier for an economy which produces corn and rice. What takes place to this frontier if a new fertilizer is developed that doubles the amount of corn that can be produced on each acre of land?
7. Find the opportunity cost of corn in terms of rice in both cases.
8. Categorize the following topics as relating to microeconomics or macroeconomics.
a. Your decision regarding how many hours to study.
b. The effect of the government spending on the national unemployment rate.
c. A workers choice among a set of two jobs.
d. The relationship between economic and education growth.
e. The optimal choice of output for a firm producing electric heaters.
Assignment No. 2
Give answers to the subsequent questions. Each question carries equal (10) marks.
1. Describe briefly law of diminishing marginal utility?
2. Find the marginal utility for the following list of consuming pizza
Pizza consumed 0 1 2 3 4 5 6 7
Total Utility 0 20 28 34 38 40 40 38
3. Explain the Utility maximizing Rule.
4. How the demand curve can be derived from utility Maximizing Rule?
5. What is income and substitution effect?
Assignment No.3
Give answers to the subsequent questions.
1. What is the relationship between a firm’s total revenue, profit and total cost? Give an illustration of hypothetical data and draw the curves.
2. Describe economies of scale and elucidate why they might arise? Define diseconomies of scale and elucidate why they may arise?
3. Crumble Corporation produces cookies. Here is the relationship between the number of workers and output (in dozens of cookies) in a given day:
Workers Output Marginal Product Total Cost Average Total Cost Marginal cost
0 0
1 28
2 50
3 67
4 80
5 90
6 95
7 96
a. Fill in the column of marginal products. What pattern do you see? How may you elucidate it?
b. A worker costs $30 per day and the 'Firm has fixed costs of $10. Use this information to fill in the column for total cost.
c. Fill in the column for average total cost. (Recall that ATC = TC/Q) What pattern do you see?
d. Now fill in the column for marginal cost. (Recall that MC = ATC/AQ.) What pattern do you see?
e. Contrast the column for marginal product and the column for marginal cost. What pattern do you see?
f. Contrast the column for average total cost and the column for marginal cost. Explain the relationship.
4. Consider the following cost information for a pizzeria:
Q (dozens) Total cost Variable Cost
0 $ 300 $ 0
1 350 50
2 290 90
3 420 120
4 450 150
5 490 190
6 540 240
a. What is the pizzeria's fixed cost?
b. Create a table in which you compute the marginal cost per dozen pizzas by using the information on total cost. Also compute the marginal cost per dozen pizzas using the information on variable cost. What is the relationship among these sets of numbers? Comment.
5. Your cousin Vinnie owns a painting company with fixed costs of $200 and the subsequent schedule for variable costs:
Quantity of houses painted per Month 1 2 3 4 5 6 7
Variable Cost $10 20 40 80 160 320 640
Compute average fixed cost, average variable cost, and average total cost for every quantity. What is the efficient scale of painting company?
6. Consider the following table of long-run total cost for three different firms:
Quantity 1 2 3 4 5 6 7
Firm A 60 70 80 90 100 110 120
Firm B 11 24 39 56 75 96 119
Firm c 21 34 49 66 85 106 129
Does each of these firms experience economies of scale or diseconomies of scale?
7. Consider total cost and total revenue given in the subsequent table:
Quantity 0 1 2 3 4 5 6 7
Total Cost $ 8 9 10 11 13 19 27 37
Total Revenue $ 0 8 16 24 32 40 48 56
a. Compute profit for each quantity. How much must the firm produce to maximize profit?
b. Compute marginal revenue and marginal cost for each quantity. Graph them. At what quantity do these curves cross? How does this relate to your answer to part (a)?
c. Can you tell whether this firm is in a competitive industry? If so, can you tell whether the industry is in a long-run equilibrium?
8. An industry currently has 100 Firms, all of which have fixed costs of $16 and average variable cost as follows:
Quantity Average variable Cost
1 $1
2 2
3 3
4 4
5 5
6 6
a. Evaluate marginal cost and average total cost.
b. The price is currently $10. What is the total quantity supplied in market?
c. As this market makes the transition to its long-run equilibrium, will the price increase or descend? Will the quantity demanded rise or fail? Will the quantity supplied by each firm rise or fall?
d. Graph the long-run supply curve for this market.
9. Draw the cost curves for a typical firm for a given price; show how the firm selects the level of output to maximize its profit.
10. Under what conditions the firms pack up and way out the market?
Assignment No.4
Give answers to the subsequent questions. Each question carries equal (10) marks.
11. What is the relationship among a firm’s total revenue, profit and total cost? Give an example of hypothetical data and draw the curves.
12. Describe economies of scale and explain why they may occur? Define diseconomies of scale and elucidate why they might arise?
13. Crumble Corporation produces cookies. Here is the relationship between the number of workers and output (in dozens of cookies) in a given day:
Workers Output Marginal Product Total Cost Average Total Cost Marginal cost
0 0
1 28
2 50
3 67
4 80
5 90
6 95
7 96
g. Fill in the column of marginal products. What pattern do you see? How may you elucidate it?
h. A worker costs $30 per day and the 'Firm has fixed costs of $10. Use this detail to fill in the column for total cost.
i. Fill in the column for average total cost. (Recall that ATC = TC/Q) What pattern do you see?
j. Now fill in the column for marginal cost. (Recall that MC = ATC/AQ.) What pattern do you see?
k. Contrast the column for marginal product and the column for marginal cost. What pattern do you see?
l. Contrast the column for average total cost and the column for marginal cost. Elucidate the relationship.
14. Consider the subsequent cost information for a pizzeria:
Q (dozens) Total cost Variable Cost
0 $ 300 $ 0
1 350 50
2 290 90
3 420 120
4 450 150
5 490 190
6 540 240
c. What is the pizzeria's fixed cost?
d. Make a table in that you compute the marginal cost per dozen pizzas using the information on total cost. Also calculate the marginal cost per dozen pizzas using the information on variable cost. What is the relationship between these sets of numbers? Comment.
15. Your cousin Vinnie owns a painting company with fixed costs of $200 and the following schedule for variable costs:
Quantity of houses painted per Month 1 2 3 4 5 6 7
Variable Cost $10 20 40 80 160 320 640
Compute average fixed cost, average variable cost, and average total cost for each quantity. What is the efficient scale of the painting company?
16. Consider the following table of long-run total cost for three different firms:
Quantity 1 2 3 4 5 6 7
Firm A 60 70 80 90 100 110 120
Firm B 11 24 39 56 75 96 119
Firm c 21 34 49 66 85 106 129
Does each of these firms experience economies of scale or diseconomies of scale?
17. Consider total cost and total revenue given in the following table:
Quantity 0 1 2 3 4 5 6 7
Total Cost $ 8 9 10 11 13 19 27 37
Total Revenue $ 0 8 16 24 32 40 48 56
d. Compute profit for each quantity. How much should the firm produce to maximize profit?
e. Compute marginal revenue and marginal cost for each quantity. Graph them. At what quantity do these curves cross? How does this relate to your answer to part (a)?
f. Can you tell whether this firm is in a competitive industry? If so, can you tell whether the industry is in long run equilibrium?
18. An industry currently has 100 Firms, all of that have fixed costs of $16 and average variable cost as follows:
Quantity Average variable Cost
1 $1
2 2
3 3
4 4
5 5
6 6
a. Evaluate marginal cost and average total cost.
b. The price is currently $10. What is the total quantity supplied in the market?
c. As this market makes the transition to its long-run equilibrium, will the price rise or fall? Will the quantity demanded rise or fail? Will the quantity supplied by each firm rise or fall?
d. Graph the long-run supply curve for this market.
19. Draw the cost curves for a typical firm for a given price; show how the firm chooses the level of output to maximize its profit.
20. Under what conditions the firms shut down and exit the market?