Question

the demand function for a good x is given as:

qx=11-2p

Choose the correct statement:

a) if the quantity is 1 the elasticity is -10

b) none of the other answers

c) the demand represents a Giffen good

d) this D curve crosses the p axes at p=11

2.Consider the following function: Q(K-L) =5L+Kg =5L +7

Which statement about this particular production function is FALSE?

a) With every additional unit of L added, Q increases at a decreasing rate

b) The production takes place in the short run

c) the marginal product of labor is MPL=5

d) the marginal product capital is 0

Answer 1

1. a) if quantity is 1 the elasticity is -10

If the quantity is 1, then p=5 and dq/dp = -2. Therefore, elastcity = (dq/dp)*(p/q) = -2*(5/1) = -10

the demand represents a normal good, i.e, if price rises, quantity falls and vice versa. Thus, this is not a giffen good

The D curve crosses the p-axes when q=0, i.e, when p=5.5 (here). so, option d is wrong.

2. a) With every additional unit of L added, Q increases at a decreasing rate.

With every additional unit of L added, Q increases at the rate of MPL = dQ/dL = 5>0. So, Q increases at an increasing rate. This supports the claim made in option c as well.

the marginal product of capital = dQ/dK = 0. Hence this is also true.