Dr. Seth Sacher Fall 2014
Johns Hopkins University
M.A. Program in Applied Economics
Microeconomic Theory & Policy
This course is about human decision making in the face of scarcity. Topics include:
choice and demand; production
Solutions to Problem Set #9
1. Suppose a market is characterized by a duopoly. Also suppose that each firm
makes the Cournot conjecture (i.e. each firm believes that regardless of how much
it produces, the other firms output remains constant). Firm 1s out
Solutions to Problem Set #8
1. Suppose two animals are fighting over one morsel of food. Each can either
behave like a hawk (i.e. be aggressive), or like a dove (i.e. be passive). They
play a game whose payoffs are shown in the table below.
Solutions to Problem Set #7
1. The market demand curve for apples is QD = 300 P, and the market supply
curve is QS = (P 60)/2.
a. Find the equilibrium price and quantity in the apple market.
Given that we know that at the equilibrium QD = QS we have a sys
Solutions to Problem Set 6
Total cost are
C .25q 2 .25 qA qL ,
and demands are
qA 100 2PA
qL 100 4PL .
First, in order to determine maximum profits, we need to get the inverse demand
curves (price as a function of quantity). For Australia and Lapla
Solutions to Problem Set #4
1. A firms Production (or Total Product) function is given by:
TP Q = 100A2 A3
where A is the only input in the production process.
a. Find the average product (AP) function.
AP = Q/A = 100A A2
b. Find the marginal product (MP)
Solutions to Problem Set #3
1. For a price decrease, using Hicksian and Marshallian demand curves, graph
consumer surplus, the equivalent variation and the compensating variation.
Which is largest? Smallest? Explain why.
Refer to the below figure.
Solutions to Problem Set #2
1. Using the method of Lagrange Multipliers, find the demand functions for X and Y
for the following utility function:
U(X,Y) = X.75Y.25
PXX + PYY = I
This is known as a Cobb-Douglas utility function. First we set up the Lagran
Solutions to Problem Set #1
a. Normative. This statement is prescriptive in nature. Words like
should or ought are good indicators of a normative statement.
b. Positive. This is a testable hypothesis; one could scientifically
investigate the relationsh