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Microeconomics: Theory and Applications with Calculuss [EXP-27103]
250 SOLVED PROBLEMS
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Question: 5.4.10
5.Prescott (2004) argued that U.S. employees work 50% more than do German, French, and Italian employees because European employees face lower marginal tax rates. Assuming that workers in all four countries have the same tastes toward leisure and goods, must it necessarily be true that U.S.
Verified Answer:
As the marginal tax rate on income increases, peop...
Question: 15.1.8
A competitive firm has a constant elasticity production function, q = (L^ρ+ K^ρ )^1/ρ. What is its marginal revenue product of labor? q = (L^ρ+ K^ρ )^1/ρ
Verified Answer:
The competitive firm’s marginal revenue of labor i...
Question: 8.2.3
A competitive firm’s bookkeeper, upon reviewing the firm’s books, finds that the company spent twice as much on its plant, a fixed cost, as the firm’s manager had previously thought. Should the manager change the output level because of this new information? How does this new information
Verified Answer:
How much the firm produces and whether it shuts do...
Question: 6.1
A computer assembly firm’s production function is q = 0.1LK + 3L^2K – 0.1L^3K. What is its short-run production function if capital is fixed at K = 10? Give the formulas for its marginal product of labor and its average product of labor. Draw two figures, one above the other.
Verified Answer:
1. Write the formula for the short-run production ...
Question: 4.7
A consumer has a Cobb-Douglas utility function U = q1^a q2^(1 – a). Derive the compensated demand function for Good q1. Given that a = 0.4 in Jackie’s utility function, what is her compensated demand function for music tracks, q1?
Verified Answer:
1. Write the formula for the expenditure function ...
Question: 3.3
A consumer has a quasilinear utility function, Equation 3.9, U = u(q1) + q2, where du(q1)/dq1 7 0 and d^2u(q1)/dq1 ^2 6 0. Show that the consumer’s indifference curves are parallel and convex.
Verified Answer:
Use the formula for an indifference curve to show ...
Question: 7.2.5
A firm builds wooden shipping crates. How does the cost of producing a 1-cubic-foot crate (each side is 1 foot square) compare to the cost of building an 8-cubic-foot crate if wood costs $1 per square foot and the firm has no labor or other costs? More generally,how does cost vary with volume?
Verified Answer:
The total cost of building a 1-cubic-foot crate is...
Question: 7.6
A firm has a Cobb-Douglas production function that is homogeneous of degree one: q = AL^aK^(1 – a). Derive the firm’s long-run cost function as a function of only output and factor prices. What is the cost function that corresponds to the estimated beer manufacturer’s production function
Verified Answer:
1.Combine the cost identity, Equation 7.6, with th...
Question: 15.2.12
A firm is considering an investment in which its cash flow is π1 = $1 (million), π2 = – $12, π3 = $20,and πt = 0 for all other t. The interest rate is 7%.Use the net present value rule to determine whether the firm should make the investment. Can the firm use the internal rate of return rule to
Verified Answer:
Solving for irr, we find that irr equals 1 or 9.Th...
Question: 4.3
A firm is considering building a plant in a developing country to sell manufactured goods in that country. The firm expects incomes to start rising soon and wants to know the income elasticity for goods other than food. The firm knows that the budget share spent on food is and that food is
Verified Answer:
1. Write Equation 4.1 in terms of
\zeta _{f...
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