Assignment: Introduction to Microeconomics
Instructions: Answer ALL Questions. Include referencing where additional sources have been used. APA format is recommended
Question 1
a. Draw a diagram to show the long run equilibrium condition of the perfectly competitive firm.
b. Explain three reasons why monopolies arise.
c. When does a perfectly competitive firm temporarily shut down production? When does it leave the industry all together?
d. What obstacles might a group of oligopolists encounter in forming a cartel?
Question 2
a. Define economies and diseconomies of scale and explain why they occur.
b. Explain the relationship between total product, marginal product, and average product.
c. What is the law of diminishing returns and what does it explain the shape of the short run average cost curve.
d. Why is the level of output at which marginal revenue equals marginal cost the profit maximizing output?
Question 3
a. Define the following
i. Average Product
ii. Marginal Product
iii. The Production Function.
b. Complete the following table assuming that each unit of labour costs $65
|
L
|
Q
|
AP
|
MP
|
TFC
$
|
TVC
$
|
TC
$
|
AC
$
|
MC
$
|
|
0
|
-
|
|
|
400
|
|
|
|
|
|
1
|
6
|
|
|
|
65
|
|
|
|
|
2
|
9
|
|
|
|
|
|
|
|
Question 4
a. Todd earns a weekly income of $5000. Suppose she wishes to spend this income on two goods chicken and bags only. Chicken cost $200 per meal while bags cost $500.
i. Draw Todd's budget line. Putting Chicken on the Y axis.
ii. Suppose his income increases to $10000 per week, illustrate what happens to his budget line.
b. List and explain three properties of indifference curves.
c. What is the marginal rate of substitution?