11) The demand function for a manufacturer's product is given by p = 300 - q2, where p is

11)
the price per unit when q units are demanded.
(a) Determine the point elasticity of demand when q = 5.
(b) For q = 5, is demand elastic, inelastic, or does it have unit elasticity?
(c) For what value of q does demand have unit elasticity?

400
12) The demand function for a manufacturer's product is given by p = , where p is the
q+2 12)
price per unit when q units are demanded.
(a) Find the point elasticity of demand when q = 100.
(b) For q = 100, is demand elastic, inelastic, or does it have unit elasticity?
13) Determine the point elasticity h of the demand equation (p + 1)
q + 3 = 1000, when p =
24. 13) 10)

Problem 8 Consider the following macroeconomic model:

goods
marke
t
1 Y = C + I0 + X0 M −
2 C = C0 + bY
4 M = M0 + mY
The three endogenous variables are Y, C, and M. (X is exports, M is imports). I0, X0, C0, M0 are
Constants and b and m are coefficients (both are between 0 and 1)

1. Write this system as a 3 × 3 matrix system Ax = d where

⎡ ⎤
Y ⎣ ⎦
x=
C

2. Show that the determinant is |A| = 1 − b + m

3. Use Cramer’s Rule to Find Y, C, M

4. The demand equation for a product is p = 400 - 0.2q2. Find the rate of change of quantity
with respect to price.

Suppose p = 500 - 0.01q - 0.02 q is the demand equation for a product. Find the rate of change of quantity with respect
to price

8 Consider the following macroeconomic model:

goods market
1 Y = C + I0+ X0M −
2 C = C0+bY
4 M = M0+ mY
ThethreeendogenousvariablesareY,C,andM.(Xisexports,Misimports).I0,X0,C0,M0areConstants and b and m are coefficients (both are
between 0 and1)

1. Write this system as a 3 × 3 matrix system Ax = dwhere

⎡ ⎤
Y ⎣ ⎦
x= CM

2. Showthatthedeterminantis|A|=1−b+m
 3. Use Cramer’s Rule to Find Y, C,M

18. The demand function for a particular product is

q=f(p) = 480,000 – 3,000p
where q is stated in units and p is stated in dollars. Determine the quadratic
total revenue R = g(p). What does total revenue equal when p = $100?

19. The demand function for a particular product is

q= f(p) = 1,800 – 7.5p
where q is stated in units and pis stated in dollars. Determine the quadratic
total revenue function R = h (q). (Note that q is the independent variable).
(a) .
27. Nonlinear Break – Even Analysis
28
Chapter Test
2
(a)
4.
5.
6,

6.
3. Write an exponential expression for the value:
(a) $ 70, compounded continuously at the interest rate of 4% for years.
(b) $ 690, compounded continuously at the interest rate of 5% for 2 years.
(b) $ 690, compounded continuously at the interest rate of 5% for 2 years.
(There interest rates are nominal rates per annum).

3.
(a)

4. coefficient b in (9.3) were to take a zero value, what would happen to the
marginal cost and total – cost curves?
1. Find the differential dy given:
X
(a) y=−x ( x 2+ 3 ) (b) y=(x−8)(7 x +5) (c) y= 2
X +1
2. Given the import function Q M =f ( Y ) ,where M is imports and Y is national
2

income, express the income elasticity of imports 8 MY in terms of the

propensities to import.
3. Given the consumption function C = a – by (with a >0: 0 < b < 1):
 (a) Find its marginal function and its average function.
(b) Find the income elasticity of consumption 8CY and determine
its sign, assuming y > 0.
(c) Show that this consumption function is inelastic at all positive
income levels.
4. find the point elasticity of demand, given Q=k ¿Pn, k and n are positive
constants.
(a) Does the elasticity depend on the price in this case?
(b) in the special case where n = 1, what is the shape of the
demand curve? What is the point elasticity of demand?
6
2. if population grows according to the function H=H 0 ( 2 )bt and consumption by
the function C=C 0 e al ,find the rates of growth of population, of consumption,
and of per capita consumption by using the natural log.
7.).

8.
4. (a) Given AR=60−3 Q , plot the average – revenue curve, and then find the MR
curve by the method used in Fig. 7.2.
5. Provide a mathematical proof for the general result that, given a linear
average curve, the corresponding marginal curve must have the same
vertical intercept but will be twice as steep as the average curve.
4. Given the production function Q=96 K 0.3 L 0.7, find the MM Pk and MP P L?
5.
3

Question 2
Question 3
A farmer is both a consumer and producer of wheat. q is his exogenously
given output and q his consumption. q – q is, therefore, his marketed surplus.
If p is the price per unit of wheat and x the expenditure on all other
commodities, determine the effect of a rise in the price of wheat on the
marketed surplus of the crop given that his utility function is of the following
form:
U =q2 x1−a
Question 4
The utility function of households in Pakistan is:
U =q1 q2
Where U is the level of utility and q 1and q 2 are the level of consumption of
consumer Goods I and II.
The income of each household is Rs. 500 and the price per unit of I and II
are Rs.10 and Rs.20 respectively. Determine the level of utility obtained and
the equilibrium level of consumption of the two consumer goods.
In the Federal Budget of 1980-1 the government raises the price of
Consumer Good I by 20 percent and that of consumer Good II by 10 Per cent
by levying taxes on these goods. Determine the magnitude of the dearness
allowance that has to be granted to households if the objective is to keep
their utility level unchanged.
There are altogether 12 million households of the above type in Pakistan
out of which 2 million households are employed by the government. If the
dearness allowance is given only to government employees what is the
overall revenue gain to the government of adopting such a policy?
Question 5
The per capita income of residents of a city is Y. the transport cost per unit of
distance is t o . the utility function of a resident is given by:
U =a log q+ ( 1−a ) log x
Where q is the number of unit of housing services consumed and x is the
level of non – housing expenditure.
Derive the expression for the rental gradient for housing at varying
distances from the CBD.
If Y = Rs. 2000, a = 0.25, and t o = Rs. 30, quantify the magnitude of the
rent gradient for a city which has a radius of m miles.
Question 6
Derive input demand function in the case of the production function,
q= A X 1a X β2 ( a+ β <1 )
Where r 1 and r 2are the costs per unit of the two inputs respectively, and pis
the price of the output.
If the above production function relates to the production of rice and x 1
corresponds to the use of land and x 2 to the use of fertilizer, determine the
level of input use of level of input use of the two inputs and the output level
if,
1 1
A=1, r 1=4 , r 2=2, p=16 ,a= , β=
2 4
Given the above prices the government is considering the granting of a
subsidy on fertilizer of 50 percent of price.
Determine if the policy is justified from the viewpoint of raising the level
of output and/or of generating higher revenues to the government of
Pakistan.
Question 7
The Family of short run cost curves in the cement industry is given by:
C=0.04 q3−0.9 q 2+ ( 11−K )+5 K 2
The pricing principles are:
i) Price = short run MX
(Private Sector)
 ii) Price = short run AC
(Accountants in Public Sector)
iii) Price = long run MC
(Economists in Public Sector)
Output level in the short run and long run is 20 units and 30 units
respectively.
What are the prices charged under the three pricing policies if initially
K = 1?
Question 8
The Total cost functions of port Qasim and Karachi port are given as follows:
1
C PQA =150+15 q−10 q2 + q3
2
2 3
C KPT =66+ 17 q−10 q +q
Where C is total cost and q is the quantity of cargo handled in 000 tons.
If the total volume of cargo handled at the two ports is 50, 000 tons,
what should be the optimal allocation of cargo between the two ports?
Given these optimal levels of cargo handling, determine the level of port
tariffs.
Question 9
The production functions for two areas of Pakistan are given as follows:
Area I Area II
q=X 1/2 1 /4 1/4 1/ 4
1 . X 2 q=X 1 . X 2

Where X 1is input of capital and X 2of labor.

The price of capital is Rs.5 per unit and the price of labour is Rs. 2 per
unit. The price of the output is Rs. 20 per unit. Area I is the more developed of
the two. The government is considering the granting of a subsidy of Rs. 2 per
unit on capital to Area II as well as taxing profits at the rate of 50 per cent in
AreaI. Along with the subsidy the underdeveloped area will also be given an
income tax holiday.
Will the government be successful in changeling investment to the
underdeveloped area by adopting these policies?
Question 10
Question 11
A refinery produces two products – JP – 1 and Kerosene from crude oil. The
production function is:
x=q 21+ q22
Where x is the input, and q 1 and q 2the outputs of JP – 1 and Kerosene
respectively.
If price of crude oil = Rs. 0.50 per litre
Price of JP – 1 = Rs. 2.00 per litre
Price of Kerosene = Rs. 1.00 per litre
Determine the optimal product mix of the refinery.
 The OPEC doubles the price of crude oil. What should be the ex –
refinery prices of JP – 1 and Kerosene now if the profit level of the refinery is
to remain unchanged given that the relative prices of JP – 1 and Kerosene
also remains the same?
Question 12
-Question 15
.

x2 + 25

9) The revenue
 equation for a company is given by R(x) = 1296x - 0.12x3. Determine when relative 10)
extrema occur on the interval (0, «).

10,000 11)
10) The demand equation for a monopolist's product is p = , where p is the price per
2
q + 25

12)
unit (in dollars) when q units are demanded.
(a) Determine the value of q for which revenue is maximum.
(b) What is the maximum revenue?

13)

11) .
14)

12) The demand function for a monopolist's product is p = 100 - 3q, where p is the price per unit (in dollars) for q
units. If the average cost c (in dollars) per unit for q units is c = 4 +
100
, find the output q at which profit is maximized.
q
Assignment 1

1. If the utility function of an individual takes the form.

U =U ¿
Where U is total utility, and X 1 and X 2 are the quantities of two commodities consumed:
a) Find the marginal – function of each of the two commodities.
b) Find the value of the marginal utility of the first commodity when 3 units of each commodity
are consumed.

The cost equation for a company is C(x) = 2x3 - 39x2 + 180x + 21,200. Use the second-derivative test, if
applicable, to find the relative maxima and the relative minima. (3)