Econ 201 Stage 2 Microeconomics
Tutorial 1
Question 1:
Consider the following two equations. (i) x + 2y = 120; (ii) y + 2x = 120
(a) Rewrite the two equations in y = f(x) format.
(b) Graph the two equations in x-y plane.
(c) What is the actual slope and absolute slope of Equation (i)? What is the actual and absolute slope of Equation (ii)? Which line is steeper, (i) or (ii)?
(d) What is the x and y intercept of Equation (i) and of Equation (ii)
(e) Find the value of X and Y that solve the two equations.
Question 2:
Consider the following information for the demand and supply curves in a market.
(a) Find the equations for the two in P = f(Q) form. Find the price and quantity intercepts of demand and the price intercept of supply.
(b) Solve for the equilibrium price and quantity.
(c) What is the magnitude of the consumer surplus? What is the magnitude of the producer surplus?
Demand Supply
Q P Q P
10 100 10 10
20 80 20 20
30 60 30 30
Question 3:
Suppose a firm’s total cost is given by C(q) = 192 + 12q^2, where q refers to quantity. C(q) simply means that cost is a function of quantity q. Derive an expression for Average Cost (AC) and Marginal Cost (MC) in terms of quantity (q).
Question 4:
Consider a monopolist facing a downward sloping demand function of the form. P = 100 – Q where Q denotes quantity produced by the monopolist. Derive an expression for the Total Revenue and Marginal Revenue for this monopolist in terms of Q.
Question 5:
Isha is hanging out at Newmarket with her friends. She has $40 to spend. She can spend this on hot chips or Gongcha bubble tea. From experience hot chips are $4 per packet while Gongcha is $5. Isha’s total expenditure must add up exactly to $40.
(a) If Isha buys “h” packets of hot chips and/or “g” glasses of Gongcha, what is the equation for her budget constraint? [The budget constraint is an equation that shows how the expenditures on the two goods add up to the total “income” available.]
(b) Graph this budget constraint and find the intercepts on the “h” and “g” axes.
(c) What happens to her budget constraint if she suddenly finds an extra $20 in her cellphone case; i.e., the money she has at her disposal (her “income”) goes up to $60? Rewrite the equation for the budget constraint. What are the new “h” and “g” intercepts.
(d) Suppose Isha has $60 available to her. The price of hot chips is $4 per packet but Isha finds that the bubble tea price has gone up to $6. What is the equation for the budget constraint? What are the h and g intercepts now? Draw a diagram to illustrate the situation comparing (d) and (c).
(e) Suppose Isha has $60 available to her. The price of bubble tea is $5 per glass but Isha finds that the hot chips price has gone up to $5. What is the equation for the budget constraint? What are the h and g intercepts now? Draw a diagram to illustrate the situation comparing (c) and (e).