Group Assignment

GENERAL INSTRUCTIONS
 Make sure that the assignment has 14 questions
 Read and do all the questions properly
 Make your hand writing legible and clear
 Any copy from other group discards your assignment result
 In each group maximum Five members
 Write Id no. and section for each members in separate paper
 The assignment submitted before final exam.
Note:-odd groups will do odd number question and even groups ‘will do even number questions.
 1. The demand and supply curves for candles are given below:

Demand: P = 40 - 4Q

Supply: P = 10 + Q

P is the price of a pound of candles (in $), Q the quantity of candles (in pounds).

a. Sketch the demand and supply curves. Indicate the intercepts and slopes of each.
b. Obtain the equilibrium price and quantity of candles sold in the market. Indicate them
on a graph.
c. There is a decrease in the price of wax (an input).

i. Indicate the effects on the equilibrium price and quantity of candles. (Sketch
required.)
ii. Explain clearly why the price in ‘b’ is no longer an equilibrium price, and how the
adjustment to the new equilibrium takes place.

2. The demand and supply curves for books are:

Demand: P = 20 - 3Q

Supply: P = 4 + Q, where

P is the price of a book in $, Q the quantity (number) of books.

a. Sketch the demand and supply curves. Indicate the intercepts and slopes of each.
b. Obtain the equilibrium price and quantity of books sold in the market. Indicate
them on a graph.
c. There is an increase in the price of paper (an input). Indicate the effects on the
equilibrium values of P and Q (sketch required). Explain clearly why the price in
 is no longer an equilibrium price, and how the adjustment to the new equilibrium
takes place.

3. Complete the following table

Labor Total MPL APL

output

3 - 18 30

4 - 20 -

5 130 - -

6 - 5 -

7 - - 19.5

4. Suppose the average product of two units of labor is 24 quintals of wheat and that of three
units of labor is 39 quintals of wheat. What is the marginal product of the third unit of labor?

5. A Company has an assembly line of fixed size A. Total output is a function of the number of
workers as shown in the following schedule:

No. of Workers (L) Total Output (Q)

0 0
1 10
2 30
3 50
4 56
5 59
6 60
7 60
8 58

(a) Determine the marginal product of labor and average product of labor.

(b) Determine the rage of employment that show the three stages of production
 (c) Indicate the level of employment at which the law of diminishing returns first
occurs.

(d) Suppose the market price of the output $15 and the wage rate is $90, how many
workers would this firm hire? What if the market price decreases to $10?

(e) Suppose the market price increases to $25, what is the highest wage rate the firm
would be willing to pay to employ 4 units of labor?

6. Consider that there are 6 identical buyers of soap in a market with an individual demand
function of p=300-6Qq and 2 identical sellers of soap with an individual supply function of
Qs=10+0.5p where Q is quantity of soap and P is price.
A. Calculate equilibrium price and quantity?
B. Draw the diagram of market equilibrium?
C. Compute elasticity demand?
7. Suppose a consumer has income of 200 birr per month and he wants to spend all of his income
on two goods, X and Y, whose prices are birr 4 and birr 5 respectively. Based on this information
answer the following questions:

a. Express the budget line of the consumer both algebraically and diagrammatically.

b. Compute the equation of the budget line.

c. Determine the slope of the budget line and interpret the result

e. What will happen to the original budget line?

i. If money income doubles.

ii. If the price levels increases by 50%.
iii. If price of good Y doubles.
8. Suppose that the total utility function of a consumer is given by TU(x,y) = 3X 2 Y, and the
prices of X and Y are 1 Birr and 2 Birr per unit, respectively. If the income of the consumer is
600 Birr and if he spends all of his income on the consumption of commodities of X and Y, find
the optimum amount of X and Y that the consumer will consume at equilibrium.
9. Given MUx = X, MUY = 4Y, Price of X is 3 Birr per unit and price of Y is also 3 Birr per
unit. If the income of the consumer is 1200 Birr, find the amounts of X and Y that the consumer
chooses to consume so as to maximize his utility.
10. Suppose that a perfectly competitive firm faces the following three cases P1=10 Birr, P2= 6
Birr and P3= 4 Birr.
Outpu ST TFC TVC AFC AVC ATC MC MR1 MR2 MR3
t C
0 20
1 37
2 41
3 42
4 45
5 49
6 55
7 62
8 71
9 81
10 92

A) Given the above table fill out the empty columns by calculating the required variables
based on the information given in the same table and the three different prices.
B) What is the profit maximizing level of output in each case for the competitive firm
represented by this table?
C) Should this competitive firm continue or shut down or indifferent production under
each case? Why

11. Given a cost function TC = 2000 + 20Q+ 100Q2 + 10Q3 + 10Q4 where Q is out put
If output produced is 20 units, then calculate
i) STC v) AFC
ii) TVC vi) MC
iii) AVC
iv) ATC
12.Suppose the short run market price a competitive firm faces is Birr 9 and the total cost of the
firm is: TC = 200 + Q + 0.02Q2 . Answer the questions that follow.
(A) Calculate the short run equilibrium output and profit of the firm.
(B) Derive the MC, ATC, and AVC and calculate the values at the short run equilibrium
output.
(C) Calculate the producers’ surplus at the equilibrium output.
(D) Find the output level that will make the profit of the firm zero.
13. Consider the following information for a particular economy.
Total population = 60 million Number of employed = 30 million
Total labor force = 40 million Natural rate of unemployment = 12%
a) Find the total unemployment rate
b) Calculate the cyclical unemployment rate
14. Consider an economy that produces and consumes Bread and Automobile. Data for two
Different years 2005 and 2010 are given in the following table.
Year 2005 2010
Price of Automobiles $ 5000 $ 6000
Price of a loaf of bread $10 $20
Number of automobiles produced 100 120
Number of loaves of bread 500,000 400,000
produced
Using the year 2005 as a base year,
a) Calculate the nominal and real GDP of 2010.
b) Find the value of GDP Deflator for the year 2010 and interpret.
c) Calculate the inflation rate in 2010.