School of Law, Economics, and Government

Department of Economics

ECO 212: Mathematics for Economists

Examination Paper 1
17:00 hrs. 26th October, 2023

Instructions:

1. There are 10 (ten) questions in this paper. Please check.

2. Answer all questions.
3. The use of a calculator is allowed. Use of phone is strictly not allowed.
4. Write as clearly and legibly as possible.
5. Show your workings and assumptions.
6. Time allowed is 2 (two) hours.
7. Marks are indicated against each question.

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Question 1. Does this equation make sense? Explain: 𝑥 + 2 = √4 − 𝑥 (5 marks).
 𝑥 + 2 = √4 − 𝑥
 Squaring both sides = (𝑥 + 2)2 = 4 − 𝑥
 𝑥 2 + 4𝑥 + 4 = 4 − 𝑥
 𝑥 2 + 5𝑥 = 0
 𝑥(𝑥 + 5) = 0
 𝑥 = 0 or 𝑥 = −5
 If 𝑥 = 0 then 𝑥 + 2 = √4 − 𝑥 => 0 + 2 = √4 − 0 and 2 = √4.
 So, this is true only when we take the positive number of √4 and not the
negative number.
 If 𝑥 = −5 then 𝑥 − 5 = √4 − −5 => −5 + 2 = √4 − −5 and −3 = √9.
 So, this is true only when we take the negative answer of √9 and not the
positive number.

Question 2. The prices of commodities 𝑥1 and 𝑥2 are 𝑝1 and 𝑝2 , respectively. A

household’s total cost for these commodities cannot exceed the
available budget amounting to 𝑀. (15 marks)
a. Put this information into an algebraic expression.
𝑝1 𝑥1 + 𝑝2 𝑥2 ≤ 𝑀
b. Draw a graph to present these data.

𝑥1

𝑝1 𝑥1 + 𝑝2 𝑥2 ≤ 𝑀

𝑥2

c. On the graph, sketch the implication of 𝑝1 increasing to 𝑝1′ and

provide a narrative of the same.
The intercept will be inner. The possible total expenditure basket will be smaller.

𝑥2 2𝑥
Question 3. Simplify 𝑥+1 ÷ 𝑥 2 −1 (5 marks)

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 𝑥2 2𝑥
 ÷ 𝑥 2 −1
𝑥+1
𝑥2 𝑥 2 −1
 ×
𝑥+1 2𝑥
𝑥 (𝑥−1)(𝑥+1)
 ×
𝑥+1 2
(𝑥−1)
 𝑥× 2
1
 𝑥(𝑥 − 1)
2

Question 4. Solve the following equations (15 marks):

a. 2𝑥 2 + 9𝑥 = −5
 2𝑥 2 + 9𝑥 = −5
 This is the same as 2𝑥 2 + 9𝑥 + 5 = 0
 So to use the quadratic equation formula, we have 𝑎 = 2, 𝑏 = 9, & 𝑐 = 5
−𝑏±√(𝑏 2 −4𝑎𝑐) −9±√(92 −4(2)(5)) −9±√(81−40) −9±√41
 𝑥= => 𝑥 = =𝑥 = =. 𝑥 =
2𝑎 2(2) 4 4
−9+√41 −9−√41
 𝑥= or 𝑥 =
4 4
 𝑥 = −0.6492189407 or 𝑥 = −3.8507810594

b. 𝑥 2 = 4𝑥 − 4
 𝑥 2 = 4𝑥 − 4
 This is the same as 𝑥 2 − 4𝑥 + 4 = 0
 So to use the quadratic equation formula, we have 𝑎 = 1, 𝑏 = −4, 𝑎𝑛𝑑 𝑐 = 4
−𝑏±√(𝑏 2 −4𝑎𝑐) −−4±√((−4)2 −4(1)(4)) 4±√(16−16) 4±0
 𝑥= => 𝑥 = =𝑥 = =. 𝑥 =
2𝑎 2(1) 2 2
 𝑥=2

c. −5𝑥 = −3𝑥 2 − 6

 −5𝑥 = −3𝑥 2 − 6
 This is the same as −5𝑥 + 3𝑥 2 + 6 = 0
 So to use the quadratic equation formula, we have 𝑎 = 3, 𝑏 = −5, 𝑎𝑛𝑑 𝑐 = 6
−𝑏±√(𝑏 2 −4𝑎𝑐) −(−5)±√((−5)2 −4(3)(6)) 5±√(25−72) 5±√(−47)
 𝑥= => 𝑥 = =𝑥 = =. 𝑥 =
2𝑎 2(3) 6 6
 There is no square roots for negative numbers and therefore we cannot fine
the solution to this problem.

Question 5. For each equation, find the values of 𝑥 which satisfies the following
equations (10 marks):

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 a. 200(1.1)𝑥 = 200,000.00
b. 5𝑥 = 2(3)𝑥

Solution
i. 200(1.1)𝑥 = 200,000.00
 First, we divide both sides by 200 to get
 (1.1)𝑥 = 1000
 𝑙𝑜𝑔(1.1)𝑥 = log(1000)
 𝑥 log(1.1) = log(1000)
log(1000)
 𝑥 = log(1.1)
log(1000) 3
 𝑥= = 0.0413926852 = 72.4765737843 =
log(1.1)

ii. 5𝑥 = 2(3)𝑥
 Taking logarithms on both sides, we get:
 log(5𝑥 ) = log(2 × (3)𝑥 )
 log(5𝑥 ) = log(2) + 𝑙𝑜𝑔(3)𝑥 )
 log(5𝑥 ) − 𝑙𝑜𝑔(3)𝑥 = log(2)
 log(5𝑥 ) − 𝑙𝑜𝑔(3)𝑥 = log(2)
 x[log(5)] − x[log(3)] = log(2)
 x[log(5) − log(3)] = log(2)
5
 x log (3) = log(2)
log(2)
 x= 5 = 1.3569154489
log( )
3

Question 6. Assuming that the population for Malawi is today at 20 million and
that it is growing continuously at 3%, what will be the population in
ten years from today (10 marks)?
 The final value of the population in millions will be found using the formula
𝑦 = 𝐴𝑒 𝑟𝑡 , where 𝑦 id the population in the future, 𝐴 is the population, 𝑒 is the
natural number (this is because the population is growing continuously), 𝑟 is
the growth rate, and 𝑡 is the amount of time it will take growing. This implies
 𝑦 = 20 ∗ 𝑒 0.03×15 = 31.366244 𝑚𝑖𝑙𝑙𝑖𝑜𝑛

1 3
Question 7. Given the utility function 𝑈 = 𝑥14 𝑥24 (15 marks);
a. Determine the value of the marginal utilities.
b. What are the marginal utilities if 𝑥1 = 100 and 𝑥2 = 200?

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 c. Estimate the change in utility when 𝑥1 decreases from 100 to 99
and 𝑥2 increases from 200 to 201.

1 3
a. Given the utility function 𝑈 = 𝑥1 𝑥2 , then the marginal utilities are
4 4

3 3 1 1
𝜕𝑈 1 − 𝜕𝑈 3 −
= 4 𝑥1 4 𝑥24 𝑎𝑛𝑑 = 4 𝑥14 𝑥2 4
𝜕𝑥1 𝜕𝑥2

b. What are the marginal utilities if 𝑥1 = 100 and 𝑥2 = 200?

We replace the values of 𝑥1 𝑎𝑛𝑑 𝑥2
3 3 3 3
𝜕𝑈 1 − 1
= 4 𝑥1 4 𝑥24 = 4 (100)−4 (200)4 = 0.42
𝜕𝑥1
1 1 1 1
𝜕𝑈 3 3
= 4 (100)4 (200)−4 = 4 (100)4 (200)14 = 0.63
𝜕𝑥2

c. Estimate the change in utility when 𝑥1 decreases from 100 to 99 and 𝑥2

increases from 200 to 201.
𝜕𝑈 𝜕𝑈
If ∆𝑥1 = −1 𝑎𝑛𝑑 ∆𝑥2 = 1, then ∆𝑈 = 𝜕𝑥 ∆𝑥1 + 𝜕𝑥 ∆𝑥2 = (0.42)(−1) + (0.63)(1) =
1 2

0.21

Question 8. Solve the following system of equations (15 marks):

𝛼11 𝑥1 + 𝛼12 𝑥2 + 𝛼13 𝑥3 + 𝛼14 𝑥4 = 𝑑1
𝛼21 𝑥1 + 𝛼22 𝑥2 + 𝛼23 𝑥3 + 𝛼24 𝑥4 = 𝑑2
𝛼31 𝑥1 + 𝛼32 𝑥2 + 𝛼33 𝑥3 + 𝛼34 𝑥4 = 𝑑3
𝛼41 𝑥1 + 𝛼42 𝑥2 + 𝛼43 𝑥3 + 𝛼44 𝑥4 = 𝑑4

Question 9. A consumer has an income of 𝑀𝐾1,600,000 to spend on the two

goods 𝑥 and 𝑦 whose prices are 𝑀𝐾2,000 and 𝑀𝐾500, respectively.

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 Hint: Although not necessary, you may consider sketching the results
on a graph (15 marks).
a. What is the slope of the budget constraint?
b. What happens to this slope if 𝑃𝑦 rises to 𝑀𝐾1,000?
c. What happens if income then falls to 𝑀𝐾1,000,000?

Solution:
𝑃 2000
a. Slope=− 𝑃𝑥 = − 500 = −4
𝑦
𝑃 2000
b. If the price of Y changes to 𝑀𝐾1,000, then =− 𝑃𝑥′ = − 1000 = −2
𝑦
c. Consumption will shrink while maintaining the slope. The new budget line
will be 2,000𝑥 + 500𝑦 = 1,000,000

Question 10.An industry has 100 firms, each having an average cost function:
𝐴𝐶 = 40𝑞 −1 + 0.4𝑞 2 . The industry has a demand schedule 𝑝 = 70 −
0.08𝑄, where 𝑄 is the industry output and 𝑞 is an individual firm’s
output. Hint: Assume all new entrants have the same cost structure,
a perfectly competitive market, and therefore total revenue is 𝑝 × 𝑞
and that in the long run, the market clears at 𝑀𝐶 = 𝐴𝐶 (20 marks).
a. What is the industry output?
b. What is the short-run price?
c. What is the profit for each firm?
d. What happens to the price, industry output, and the number of
firms in the long-run?

i.The industry’s supply side schedule is the horizontal sum of the individual
firms’ marginal cost schedules.
 If the average cost function is given by 𝐴𝐶 = 40 ∗ 𝑞 −1 + 0.4𝑞 2 then the total
cost function is 𝑇𝐶 = 40 + 0.4𝑞 3 and the marginal cost function is 𝑀𝐶 = 1.2𝑞 2
 𝑀𝐶 = 1.2𝑞 2
𝑀𝐶 0.5
 𝑞 = ( 1.2 )
 Because there are 100 firms, then the total industry output is:
𝑀𝐶 0.5
 𝑄 = 100 × 𝑞 = 100 × ( 1.2 )

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 In perfect competition the 𝑀𝐶 corresponds to the price 𝑝 at which any
given quantity will be supplied, and so the total output function can be
rewritten as
𝑀𝐶 0.5 𝑝 0.5
 𝑄 = 100 × 𝑞 = 100 × ( 1.2 ) = 100 × (1.2)
𝑝 0.5
 0.01𝑄 = (1.2)
𝑝 0.5
 Therefore 0.01𝑄 = (1.2)
𝑝
 (0.01𝑄)2 = (1.2)
𝑝
 0.0001𝑄 2 = (1.2)
 0.00012𝑄 2 = 𝑝 (The industry supply function
 But, at equilibrium, supply is equal to demand
 𝑝 = 70 − 0.08𝑄
 Supply function is
 𝑝 = 0.00012𝑄 2
 Then 𝑝 = 0.00012𝑄 2 = 70 − 0.08𝑄
 0 = 0.00012𝑄 2 + 0.08𝑄 − 70
 We use the quadratic equation formula
−0.08±√0.082 +4∗0.00012∗70
 𝑄=
2∗0.00012
−0.08±√0.0064+0.0336
 𝑄= 0.00024
−0.08±√0.04
 𝑄= 0.00024
−0.08±0.2
 𝑄= 0.00024

−0.08+0.2 −0.08−0.2
 𝑄= 𝑜𝑟
0.00024 0.00024
0.12 −0.28
 𝑄 = 0.00024 𝑜𝑟 0.00024
 𝑄 = 500 (we ignore the negative quantity of 𝑄 = −1,166.67)

ii. The short run price

 The price therefore is (by substituting into the demand function):
 𝑝 = 70 − 0.08(500) = 𝑀𝐾30

iii. The firms profit is TR-TC

500
 Each firm is producing 100 = 5 = 𝑞
 𝑇𝑅 = 𝑝 ∗ 𝑞 = 30 ∗ 5 = 𝑀𝐾150.00
 Total cost is 𝑇𝐶 = 40 + 0.4𝑞 3 = 40 + 0.4 ∗ 53 = 40 + 0.4 ∗ 125 = 40 + 50
 𝑇𝑜𝑡𝑎𝑙 𝑃𝑟𝑜𝑓𝑖𝑡 = 𝜋 = 𝑀𝐾150.00 − 𝑀𝐾90.00 = 𝑀𝐾60.00

iv. If new firms are making profits, then in the long run, new entrants will join the
market. This will shift the supply curve to the right and shift prices down until
each firm is just breaking even – when prices are at the lowest level of the
u-shaped average cost function. The lowest level of the average cost
Page 7 of 8
 function is where it intersects with the marginal cost function. Therefore one
can just find a minimum of the AC function or find a point when AC=MC
 𝑀𝐶 = 𝐴𝐶
 𝑀𝐶 = 𝐴𝐶
 1.2𝑞 2 = 40𝑞 −1 + 0.4𝑞 2
 0.8𝑞 2 = 40𝑞 −1
 0.8𝑞 3 = 40 by dividing both sides by 𝑞 −1
 𝑞 3 = 50 by dividing both sides by 0.8
 𝑞 = 3.6840314986 = 3.684
 At 𝑞 = 3.684, then 𝐴𝐶 = 40𝑞 −1 + 0.4𝑞 2 = 40 ∗ 3.684−1 + 0.4 ∗ 3.6842 =
16.2865057008 = MK16.29 which is the price.
 This changes the supply function because of the increased number of firms
(by the new entrants). The total industry output (using the demand function)
 𝑝 = 70 − 0.08𝑄
 16.29 = 70 − 0.08𝑄
 70 − 16.29 = 0.08𝑄
 53.71 = 0.08𝑄
 𝑄 = 671.375
𝑄 671.375
 The number of firms is 𝑞 = 3.684 ≈ 182 (to the nearest whole number).

Ж Ж Ж Ж Ж Ж Ж End of question paper Ж Ж Ж Ж Ж Ж Ж

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