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I’m working on a economics multi-part question and need an explanation and answer to help me learn.

Please write all steps and watch out the value of a,b,c.

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a=4?b=0?c=9

Question 1

(Lecture 3)

Consider the following weekly demand function for good A:

QD = 335 – 40a 5PA 5 PB (0.01 a/500) Y + 0.1 L2

where a follows from your candidate number and where PA is the price of good A; PB

is the price of another good, good B; Y is income; and L is time spent on leisure

measured in hours. Assume PA = £5, PB = £5, Y = £20 000, and L = 20.

a) Using the point method, calculate price elasticity of demand at the current price

level.

(5 marks)

b) Is good A a normal good or inferior good?

(2 marks)

Suppose the price of good B goes up to £6.

c) Has the demand for good A become more or less elastic?

(3 marks)

Explain all your answers. Without explanation your answers will be awarded 0 marks,

even when the answer is correct.

Page 2 of 4

Question 2

(Lecture 4)

Sishang is a regular consumer of broccoli and salmon. For him, broccoli and salmon

are both normal goods. The indifference curves related to his utility function exhibit the

usual property of diminishing marginal rate of substitution.

a) Make a draft of his indifference map.

(2 marks)

Suppose the price of broccoli goes up.

b) By means of diagrams show how a change in the price of broccoli changes

Sishangs income-consumption curve.

(5 marks)

c) In what direction will the Engel curve for broccoli move as a result of the change

in price?

(3 marks)

Explain all your answers. Without explanation your answers will be awarded 0 marks,

even when the answer is correct.

Question 3

(Lecture 5)

YorkCork is a company that produces corks for wine bottles using capital (K) and

labour (L). The total output is dictated by the following production function:

Q = F(K,L) = (5+b)KL,

where Q and K are measured in units and L in hours and where b follows from your

candidate number. Suppose the current wage rate is w = 20 and the rental rate on

capital is r = 40.

a) Determine whether the production function exhibits decreasing, constant or

increasing returns to scale.

(2 marks)

b) Write the equation for the marginal and average product of capital. Find the

firms MRTS.

(4 marks)

c) What is the cost minimizing input mix if YorkCork wishes to produce 160 units

of output?

(4 marks)

Page 3 of 4

Question 4

(Lecture 6)

Consider a monopolist who faces the following demand function

80 ? ??

2

The cost function of the monopolist is ?? = 10 + (?? + 1)?? 2 where ?? follows from your

candidate number.

??=

a) Find the profit maximising price and quantity.

(3 marks)

b) Find the consumer surplus and producer surplus.

(3 marks)

c) Suppose the government sets a price ceiling of ?? = 70. How would this affect

the profit?

(4 marks)

Explain all your answers. Without explanation your answers will be awarded 0 marks,

even when the answer is correct.

Question 5

(Lecture 7)

Suppose firm A and firm B produce differentiated goods. The inverse demand curve

for firm A is ???? = 20 ? ???? ? ???? . The inverse demand curve for firm B is ???? = 20 ? ???? ?

(?? + 1)???? where b follows from your student number. The cost functions of the two

firms are the same: ???? = 5???? , where ?? = ??, ??.

a) Find the best response functions for each firm in a Nash-Cournot equilibrium

and illustrate them in a diagram.

(4 marks)

b) What are the Nash-Cournot equilibrium quantities?

(2 marks)

c) Suppose firm B receives a £3 subsidy per unit produced from the government.

What are the new Nash-Cournot equilibrium quantities?

(4 marks)

Explain all your answers. Without explanation your answers will be awarded 0 marks,

even when the answer is correct.

Page 4 of 4

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Explanation & Answer:

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