Question

1.Consider the following consumption function and the national income identity. C=0.01Y² +0.8+200

Y=C+S

Where, C is consumption and Y is national income, and S is saving

Calculate the value of marginal propensity to consume (MPC) when Y=8

Find the expression for savings function and using that function calculate marginal propensity to save (MPS) when Y= 8.

2. Consider the supply equation given below:

Q=7+0.1P + 0.004 P²

Find the price elasticity of supply if the current price is 80. Is supply elastic or inelastic? Explain why.

Estimate the percentage change in supply if the price rises by 10%.

3. Consider a firm which has the possibility of charging different prices in its domestic and foreign markets. The demand equations, and the total cost equation are given below Q₁= -P₁+300, Q₂=-2P₂+400, and TC=100Q+5000, where, Q=Q₁+Q₂

What are the prices (P₁ and P₂) that the firm should charge to maximize profits, with price discrimination?

What is the price that the firm should charge to maximize profits, without price discrimination?

Determine the profits with and without price discrimination. Should this firm practice price discrimination?

4. A firm producing two goods (X and Y) has the following profit (? ) function:

                              ?=64X-2X²+ 4XY-4Y² +32Y-14

                              What are the values of X and why that maximizes profit?

5. A firm producing two goods (X and Y) has the following cost (C) function:

                              Cost: C =5X² +2XY+3Y² +800

                              Production quota: X+Y=39

      What are the values of X and Y that minimizes cost subject to the firm’s production quota?

Answer 1