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Microeconomics Mock

This document contains 5 practice questions related to microeconomics concepts. Question 1 involves calculating cost functions from a production function and discussing economies of scale. Question 2 examines consumer utility maximization and general equilibrium. Question 3 analyzes a monopolist's profit-maximizing output and pricing decisions. Question 4 looks at long-run equilibrium in a perfectly competitive market. Question 5 considers short-run and long-run equilibrium for firms and markets under perfect competition.

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93 views3 pages

Microeconomics Mock

This document contains 5 practice questions related to microeconomics concepts. Question 1 involves calculating cost functions from a production function and discussing economies of scale. Question 2 examines consumer utility maximization and general equilibrium. Question 3 analyzes a monopolist's profit-maximizing output and pricing decisions. Question 4 looks at long-run equilibrium in a perfectly competitive market. Question 5 considers short-run and long-run equilibrium for firms and markets under perfect competition.

Uploaded by

riyaroxit
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Microeconomics Mock

1 1
1. Consider the production function: f (l, K) = 2L 4 K 4

(a) Find the associated long run total cost function, average cost func-
tion and marginal cost function in terms of wage rate w, rental
rate r and output Q. (15)
(b) Comment on the economies of scale exhibited by the cost function.
(5)

2. Consider two consumers A and B and two goods 1 and 2. Consumer


i’s utility function i = A, B is given by ui (xi1 , xi2 ) = xi1 xi2 . The initial
endowments are (ω1A , ω2A ) = (4, 2)) and (ω1A , ω2A ) = (1, 3)).

(a) Given prices p1 and p2 , write down the income levels of the con-
sumers mA and mB , in terms of the endowment levels. (3)
(b) Write down the optimal consumption bundles (xA A B B
1 ∗, x2 ∗) and (x1 ∗, x2 ∗)
as functions of p1 and p2 .(5)
(c) Compute a price vector representing a general equilibrium. What
are the quantities consumed by each consumer under these prices?
What is their level of utility? (12)

3. A monopolist has a cost function c(y) = y, so that its marginal costs


are constant at Re. 1 per unit. It faces the following demand curve:

0 , p > 20
D(p) =
 100 , p ≤ 20
p

(a) What is the profit maximizing choice of output? (10)


(b) What output would the monopolist produce if forced to behave as
a competitor? What would be its competitive price? (10)

1
4. Suppose there is a perfectly competitive industry where all the firms
are identical with identical cost curves. Furthermore, suppose that a
representative firm’s total cost is given by the equation T C = 100+q 2 +q
where q is the quantity of output produced by the firm. You also know
that the market demand for this product is given by the equation P =
1000–2Q where Q is the market quantity. In addition you are told that
the market supply curve is given by the equation P = 100 + Q.

(a) What is the equilibrium quantity and price in this market given
this information? (3)
(b) The firm’s MC equation based upon its TC equation is M C =
2q + 1. Given this information and your answer in part (a), what
is the firm’s profit maximizing level of production, total revenue,
total cost and profit at this market equilibrium? Is this a short-run
or long-run equilibrium? Explain your answer. (6)
(c) Given your answer in part (b), what do you anticipate will happen
in this market in the long-run? (2)
(d) In this market, what is the long-run equilibrium price and what
is the long-run equilibrium quantity for a representative firm to
produce? Explain your answer. (6)
(e) Given the long-run equilibrium price you calculated in part (d),
how many units of this good are produced in this market? (3)

5. Consider a perfectly competitive market in the short run. Assume that


market demand is P = 100 − 4QD and market supply is P = QS .
Denoting firm level quantity by q, assume T C = 50 + 4q + 2q 2 so that
M C = 4 + 4q.

(a) What is the market equilibrium price and quantity? (2)


(b) How many firms are in the industry in the short run? (3)
(c) Do firms make a profit or loss in the short run, and how much are
these profits/losses? (4)

2
(d) What is the equilibrium price in the long run? What will be equi-
librium profit in the long run? How many firms will there be in
the long run? (11)

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