Microeconomics - Exercises - with Suggested Solutions

1 Download free books at Krister Ahlersten Microeconomics Exercises with Suggested Solutions Download free books at Microeconomics Exercises with Suggested Solutions 2008 Krister Ahlersten & Ventus Publishing ApS ISBN 978-87-7681-412-0 Download free books at Exercises with Suggested Solutions ContentsContents 1. Consumer Theory Preferences The Budget Line Utility Maximization 2. Demand Price Changes Income Changes Elasticities 3. Production Definitions The Production Function 4. Costs Costs in the Short Run Costs in the Long Run 5. Perfect Competition Definitions and Assumptions The Firm s Short-Run Profit Maximization The Firm s Long-Run Profit Maximization 6.

2 Monopoly Monopoly Profit Maximization and Efficiency Problems Price Discrimination 8 8 9 10 11 11 11 12 13 13 14 15 15 16 18 18 18 19 21 21 22 what s missing in this equation?maeRsK inteRnationaL teChnoLogY & sCienCe PRogRammeYou could be one of our future talentsAre you about to graduate as an engineer or geoscientist? Or have you already graduated?If so, there may be an exciting future for you with Moller - Maersk. click the advertDownload free books at Exercises with Suggested Solutions 7. Game Theory Basic Concepts Games on Normal Form Games on Extensive Form 8. Oligopoly The Cournot Model The Bertrand Model 9.

3 Monopolistic Competition 10. Labor The Supply of Labor The Demand for Labor 11. General Equilibrium Definitions Efficient Production 12. Choice under Uncertainty 13. Other Market Failures Basic Concepts Externalities Public Goods Contents23 23 23 24 25 25 25 27 28 28 29 30 30 30 32 33 33 33 34 free books at Exercises with Suggested Solutions Suggested Solutions 1. Consumer Theory Preferences The Budget Line Utility Maximization 2. Demand Price Changes Income Changes Elasticities 3. Production Definitions The Production Function 4. Costs Costs in the Short Run Costs in the Long Run 5.

4 Perfect Competition Definitions and Assumptions The Firm s Short-Run Profit Maximization The Firm s Long-Run Profit Maximization 6. Monopoly Monopolies Monopoly Profit Maximization and Efficiency Problems Price Discrimination Contents35 35 35 39 41 44 44 48 52 55 55 57 59 59 60 64 64 65 66 68 68 69 72 Always aiming for higher another day at the office for a Tiger. 2009 Accenture. All rights the Accenture High Performance Business Forum On Thursday, April 23rd, Accenture invites top students to the High Performance Business Forum where you can learn how leading Danish companies are using the current economic downturn to gain competitive advantages.

5 You will meet two of Accenture s global senior executives as they present new original research and illustrate how technology can help forward thinking companies cope with the to see the program and registerPlease click the advertDownload free books at Exercises with Suggested Solutions 7. Game Theory Basic Concepts Games on Normal Form Games on Extensive Form 8. Oligopoly The Cournot Model The Bertrand Model 9. Monopolistic Competition 10. Labor The Supply of Labor The Demand for Labor 11. General Equilibrium Definitions Efficient Production 12. Choice under Uncertainty 13. Other Market Failures Basic Concepts Externalities Public Goods Contents73 73 73 75 77 77 78 80 82 82 84 86 86 87 89 91 91 91 92it s an interestingworldGet under the skin of opportunitiesCheltenham | 24,945 + benefitsOne of the UK s intelligence services, GCHQ s role is two-fold: to gather and analyse intelligence which helps shape Britain sresponse to global events, and, to provide technical advice for theprotection of Government communication and information doing so, our specialists in IT, internet, engineering, languages,information assurance, mathematics and intelligence get wellbeneath the surface of global affairs.

6 If you thought the world was an interesting place, you really ought to explore our world of must be British citizens. GCHQ values diversity and welcomes applicants fromall sections of the community. We want our workforce to reflect the diversity of our click the advertDownload free books at Exercises with Suggested Solutions 1. Consumer Theory Preferences exercise A basic assumption about consumers in Microeconomics is that they have preferences over different baskets of goods. Explain the concepts preference , preference order , and basketof goods . exercise a)If there are only two goods, it is possible to illustrate a consumer s preferences over them with an indifference map.

7 Draw an indifference map with three indifference curves. b)There are a few standard assumptions about what an indifference map can and cannot look like. Which are these assumptions, and what reasoning lies behind them? exercise a)What is the marginal rate of substitution, MRS? State the definition and explain, in words, what it means. b)MRS will have an influence on the shape of an indifference curve. What influence? exercise a)Often, we assume that consumers have diminishing MRS. Explain what that means and how it is reflected in indifference curves. b)Can you draw an indifference curve that does not have diminishing MRS, but that is still allowed?

8 exercise a)In Figure , we have drawn an indifference curve for a certain consumer. Calculate an estimate of her marginal rate of substitution, MRS, in point )Can we say anything about whether point B is better or worse for the consumer, as compared to point A?c)What about point C?Consumer TheoryDownload free books at Exercises with Suggested Solutions Figure exercise Explain the relation between marginal willingness to pay and marginal rate of substitution, MRS. exercise a)Explain what substitute goods and complementary goods are. b)Draw a diagram for two goods, with the quantity of good 1 on the X-axis. What will the indifference curves for substitute goods look like?

9 What will they look like for complementary goods? The Budget Line exercise a)Explain in words what the budgetline is. b)Suppose we have two goods. The price of good 1 is 10 and the price of good 2 is 15. The income is 30. Construct a diagram, with the quantities on the X-and Y-axes, and draw a budget line in the diagram. c)How do the prices and the income affect the shape of the graph? What happens if the price of one good rises? What happens if income increases? exercise a)State the definition of the marginal rate of transformation, MRT. Explain what it means in words. b)Calculate MRT in exercise q1q2 ABC1543212 Consumer TheoryDownload free books at Exercises with Suggested Solutions 0 exercise a) Suppose there are two goods in a market, and that you buy q1 of the first and q2 of the second.

10 Give a mathematical expression for the total cost. b) Now, use the answer to a) to show that the marginal rate of transformation, MRT, is equal to the slope of the budget line. Utility Maximization exercise a)Explain briefly, what utility maximization is. b)What is a utility function? c)What is the criterion that a consumer maximizes her utility? Give the answer in the form of a mathematical expression. exercise a)Suppose a consumer has two goods from which to choose. Draw a graph, with quantities on the X- and Y-axes, that illustrates how she can choose, given prices and income. b)Also, illustrate a few indifference curves in the graph. c)Show how the consumer maximizes her utility and where in the graph this occurs.