Stern School of Business
New York University
Microeconomics
B01.1303
Prof. N. Economides
Fall 2011
Problem Set 4
1. A consumer spends money on two goods, electricity Y and on all other goods X. Assume that
the price of all other goods is px = 1. Con Ediso
Microeconomics B01.1303
Prof. N. Economides
Solutions to problem set 4
1. a) The budget constraint is xpx + ypy = I x + 0.1y = 1500 10x + y = 15000. At the
optimal point A, tangency between the indifference curve and the budget constraint implies
px/py =
Stern School of Business
New York University
Microeconomics
B01.1303
Prof. N. Economides
Fall 2011
Problem Set 2
1. Assume that a consumer has an income of $30,000 that he spends on air travel, Y, and all other
goods X. Assume Px = 1. Suppose that the pri
Microeconomics B01.1303
Prof. N. Economides
Solutions to problem set 8
1.
a)
Imamura
North
South 
Kenney
North

(2, 2)
(3, 3) 
South

(1, 1)
(4, 0)
Since payoffs for all outcomes do not add up to 0, this is not a zerosum game.
b)
There is no domi
Stern School of Business
New York University
Microeconomics
B01.1303
Prof. N. Economides
Fall 2011
Problem Set 3
1.
Norm and Sheila consume only meat pies and beer. Meat pies used to cost $2.00 each and
beer was $1.00 per can. Their income used to be $60.
Microeconomics
Prof. N. Economides
Solutions to problem set 7
1.a.
As the average cost is constant at $6, the marginal cost is also constant at $6. MR =
d(revenue)/dQ = d(11Q  Q2)/dQ = 11  2Q. When profit is maximized, MR = MC = 11  2Q
= 6. Therefore,
Microeconomics B01.1303
Prof. N. Economides
Solutions to problem set 3
1.
a) 60  10 = 2M + 1*30 M = 10
b) 60 = 2M + 2B
c) 60 = 2M + 2*20 M = 10
d) Rev = 1*B = $20
e) 60 = (PM + tPM)M + (PB + tPB)B
= (2 + 2t)M + (1 + t)B
We also know that when M = 10 and
B01.1303 Microeconomics
Professor N. Economides
Solutions to Problem Set 2
1. a) For the first 10,000 miles, the
budget constraint is as follows:
I = 30,000 = x + 2y
After the first 10,000 miles are
flown, a 50% discount kicks in, and
the budget constrain
SOLUTIONS TO PROBLEM SET 1
PROBLEM 1
12
J (1,9)
10
Videos
8
S (2,6)
6
4
A (3,3)
2
0
0
1
2
3
4
5
6
Mov ie s
The old budget line is shown with the dotted line and the new budget line after the price change is shown
by the solid line. Point A shows the Saman
Stern School of Business
New York University
Prof. N. Economides
Fall 2011
Microeconomics
B01.1303
Problem Set 10
1.
Suppose that OPEC acts as a price leader in the crude oil market. Let the world demand be
Q = 40  P, where P is the price in dollars, and
Stern School of Business
New York University
Microeconomics
B01.1303
Prof. N. Economides
Fall 2011
Problem Set 9
1. A singleprice profit maximizing monopolist faces the following demand and cost
functions:
P(Q) = 10,000  0.5Q
C(Q) = 4,000Q
a. Draw the m
Stern School of Business
New York University
Microeconomics
B01.1303
Prof. N. Economides
Fall 2011
Problem Set 8
1.
The setting for this game is South Pacific in 1943. Admiral Imamura needs to transport
Japanese troops from Rabaul in New Britain to New Gu
Stern School of Business
New York University
Microeconomics
B01.1303
Prof. N. Economides
Fall 2011
Problem Set 7
1.
Suppose that a monopolist has AC = MC = $6 and faces a demand curve P = 11
Q.
(a)
Find his profit maximizing quantity, price, and profit.
Stern School of Business
New York University
Microeconomics
B01.1303
Problem Set 6
Prof. N. Economides
Fall 2011
1.
Suppose that the demand function for Japanese cars in the United States is such that annual
sales of cars (in thousands of cars) will be 25
Stern School of Business
New York University
Microeconomics
B01.1303
Prof. N. Economides
Fall 2011
Problem Set 5
The number of bottles of Chardonnay demanded per year in the United States is
D(p) = 1,000,000  60,000p,
where p is the price per bottle. The
Stern School of Business
New York University
Firms and Markets
Prof. N. Economides
Fall 2011
Problem Set 1
1. Suppose Samantha and Jason both spend $24 per week on video and movie entertainment.
When the prices of videos and movies are both $4, they each
Formulas for microeconomics midterm
Derivatives:
d(yz)/dx = y(dz/dx) + z(dy/dx)
dxn/dx = nxn1
Slope of a line y(x):
dy/dx
Approximate slope of a line
between points (x1, y1) and (x2, y2): (y2  y1)/(x2 x1)
Slope of a straight line y = a + bx:
dy/dx = b
B