1. Question is based on the table below showing the marginal utilities of Good X and Good Y:
Based on the table above and the fact that the price of Good X is $2 and the price of Good Y is $4 and the consumer?s income is $26 calculate:
(a) (i) Marginal Utility per dollar of both Good X and Good Y for each quantity consumed.
(ii) The equilibrium of the consumer where he/she maximizes utility.
(b) Describe and explain the equilibrium of the consumer according to the Cardinalist approach to utility maximisation stating the equilibrium condition.
(c) Briefly state two main determinants of elasticity?
2. a) "The characteristics of the Perfect competition model are flawed by to many inaccuracies and offer little or no relevance to the real world". Explain the characteristics of the perfectly competitive model and evaluate its usefulness as to its relevance within the theory?
b) Explain with the use of an appropriate diagram the short run equilibrium of a perfectly competitive firm that is incurring abnormal profits.
c) With the use of a diagram explain the equilibrium of the firm under perfect competition in the long run.
3. a) Briefly explain the following concepts with the use of examples:
(i) "Perfectly Contestable" market.
(ii) Hit and Run competition.
b) "It can be argued that perfectly contestable market provides a more useful ideal type model than the perfectly competitive model."
In relation to the statement above, compare and contrast the hypothesis/theory of the perfectly competitive model and the perfectly contestable market in its applicability/relevance using relevant examples to justify the statement above.