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This document contains an economics assignment with 7 questions covering topics like consumer choice, production, and costs. Students are asked to draw budget lines, find utility maximizing combinations of goods, calculate marginal rates of substitution, determine profit maximizing output levels, and calculate costs like total, average, and marginal costs. The assignment must be submitted by March 30th, 2021 to either [email protected] or [email protected].

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Henok Fikadu
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372 views1 page

4 5915484905189411272

This document contains an economics assignment with 7 questions covering topics like consumer choice, production, and costs. Students are asked to draw budget lines, find utility maximizing combinations of goods, calculate marginal rates of substitution, determine profit maximizing output levels, and calculate costs like total, average, and marginal costs. The assignment must be submitted by March 30th, 2021 to either [email protected] or [email protected].

Uploaded by

Henok Fikadu
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 DOC, PDF, TXT or read online on Scribd
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Admas University

Introduction to economics Assignment ONE


Submit it via:[email protected]
Submit it via:[email protected]
Deadline: March30/2021
Task: Answer the following Questions
1. A person has $ 100 to spend on two goods X and Y whose respective prices are $3 and $5.
a. Draw the budget line.
b. What happens to the original budget line if the budget falls by 25%?
c. What happens to the original budget line if the price of X doubles?
d. What happens to the original budget line if the price of Y falls to $4?

2. A rational consumer spends all of her income on two goods: Apple and Banana. Suppose the last dollar
spent on Apple increased her total utility from 60 utils to 68 utils and the last dollar spent on Banana
increased her total utility from 25 utils to 29 utils. If the price of a unit of Apple is 2 Birr, what is the
price of a unit of Banana at equilibrium?
3. Given utility function U= X0.5Y0.5 where PX = 12 Birr, Birr, PY = 4 Birr and the income of the
consumer is, M= 240 Birr.
a. Find the utility maximizing combinations of X and Y.
b. Calculate marginal rate of substitution of X for Y (MRSX,Y) at equilibrium and interpret your
result.
4. Suppose a particular consumer has 8 birr to be spent on two goods, A and B. The unit price of good A
is 2 birr and the unit price of B is 1 birr. The marginal utility (MU) she gets from consumption of the
goods is given below.
Quantity TUA TUB
1 36 30
2 24 22
3 20 16
4 18 12
5 16 10
6 10 4
a. Based on the cardinal analysis, what is the combination of the two goods that gives maximum
utility to the consumer?
b. What is the total utility at the utility maximization level?

5. Consider the following short run production function:


Q = 6L2 - 0.4L3
a. Find the value of L that maximizes output
b. Find the value of L that maximizes marginal product
c. Find the value of L that maximizes average product
6. Given a short run cost function as T C  1 Q 3  2Q 2  60Q  100 , find the minimum

value of AVC and MC 3


a) Determine the total fixed cost for producing 100 and 300 units of output, respectively.
b) What is Average fixed cost for 100 and 300 units of output?
7. Suppose that the firm operates in a perfectly competitive market. The market price of his product is $4.
The firm estimates its cost of production with the following cost function:
TC=50+20q-5q2+0.33q3
a. What level of output should the firm produce to maximize its profit?
b. Determine the level of profit at equilibrium.
c. What minimum price is required by the firm to stay in the market?

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