Solutions for Problem Set #09
1. (a) If he owns the lottery, the individual will have a total wealth of
with probability
, and of a total wealth of
with probability
. His expected utility from it is
If he sold can sold the lottery at a price
determined in

Problem Set 9: Decision Making Under Uncertainty
1) An individual has a Expected utility function u() and initial wealth w. Let lottery L oer a payo
of G with probability p and a payo B with probability 1 p.
(a) If the individual owns the lottery, what is

Analysis of Competitive Markets Problem Set (Solutons)
1) Suppose the demand curve for a product is given by Q=300-2P+4I, where I is average
income measured in thousands of dollars. The supply curve is Q=3P-50.
a. If I=25, find the market clearing price a

Microeconomic I: Problem Set 6, Cost Theory
1) Suppose firms production function is given by F(k,l )= 5k1/2 + l1/2. Derive the firms conditional
input demand functions, long run cost function, and long run marginal cost function.
2) Suppose the firms prod

Problem Set 5: Production
1.Complete the following table:
Quantity
Of
Variable
Input
0
1
2
3
4
5
6
Total
Output
0
Marginal
Product of
Variable
Input
Average
Product of
Variable
Input
50
30
90
24
4
96
2. Complete the following table.
LABOR
1
OUTPUT
10
MPL

Tobacco levy:
response to the consultation
September 2015
Tobacco levy:
response to the consultation
September 2015
Crown copyright 2015
This publication is licensed under the terms of the Open Government
Licence v3.0 except where otherwise stated. To vi

RAISING CIGARETTE TAXES REDUCES SMOKING, ESPECIALLY AMONG KIDS
(AND THE CIGARETTE COMPANIES KNOW IT)
The cigarette companies have opposed tobacco tax increases by arguing that raising cigarette prices would
not reduce adult or youth smoking. But the compa

PRINCIPLES OF ECONOMICS 1 (SEM 101)
GROUP
ASSIGNMENT
20%
ASHES TO ASHES?
A moral dilemma of tobacco taxes
Consider the following dilemma. Cigarettes have a fairly price-inelastic demand
(approximately -0.6), and thus placing a tax on them is an effective

Problem Set 10: Oligopoly and Game Theory Problems
1. Two firms in a local market compete in the manufacture of cyberwidgets. Each firm
must decide if it will offer a warranty or not. The pay-offs of each firm's strategy is a
function of their competitor

Solution for Problem Set #10
1. The Nash Equilibrium is (Offer Warranty, Offer Warranty) and (No
Warranty, No Warranty).
If firm #1 announces they will offer a warranty regardless of what firm
#2 does, it is a credible treat. The reason is that offer a wa

Microeconomics I the solution #Problem Set 6
November 13, 2011
1
1
1. Suppose rms production function is given by F (k, l) = 5k 2 + l 2 . Derive the rms
conditional input demand functions, long run cost function, and long run marginal cost
function.
#Solu

Problem Set 8: Non-linear pricing
1) The industry demand curve for a particular market is:
Q = 1800 - 200P.
The industry exhibits constant long run average cost at all levels of output, regardless of the
market structure. Long run average cost is a consta

Microeconomic I: Problem Set 7
1) Suppose firms production function is given by F(k,l )= 5k1/2 + l1/2. Derive the firms conditional
input demand functions, long run cost function, and long run marginal cost function. Also derive its
long supply function.

1. Solution: The marginal product of the two inputs are:
Given the output level and factor prices and , the conditional demand of the two input
factors are determined in following two conditions:
We can solve out the solution as
And the long run cost func

Problem Set 8: Non-linear pricing
1) The industry demand curve for a particular market is:
Q = 1800 - 200P.
The industry exhibits constant long run average cost at all levels of output, regardless of the
market structure. Long run average cost is a consta

Chapter 11
Externalities and Property Rights
Learning Objectives
1. Define negative and positive externalities and analyze
their effect on resource allocations
2. Explain how the effects of externalities can be
remedied
3. Discuss why the optimal amount o

Chapter 9
Monopoly, Oligopoly, and
Monopolistic Competition
Market Imperfections
Learning Objectives
1. Define imperfect competition and compare it to
perfect competition
2. Define market power and explain how it affects the
firm's demand curve
3. Underst

Chapter 5
Demand
Learning Objectives
1. Relate the Law of Demand to the Cost-Benefit
Principle
2. Discuss how individual wants are translated into
demand
3. Explain the Rational Spending Rule
Apply it to buyers' decisions
4. Relate the Rational Spending

Chapter 4
Elasticity
The Basics
Learning Objectives
1. Define price elasticity of demand
Explain what determines this elasticity
2. Calculate price elasticity of demand
3. Understand how changes in price affect total
revenue
Relate to price elasticity o

Chapter 3
Supply and Demand
Learning Objectives: Understand how
1. Demand curves show buyers' market behaviors.
2. Supply curves show sellers' market behaviors.
3. Supply and demand determine equilibrium price and
quantity.
4. Shifts in supply and demand

Chapter 1
Thinking Like an Economist
Vocabulary
Scarcity: a situation in which there is not enough
of something
Principle: a basic rule
Surplus: an amount of something that is more
than what is needed or used; excess
Opportunity: a chance to do something

Intermediate Microeconomics
Competitive Supply in the Short-Run
Jacopo Magnani
WISE, Xiamen University
1 / 38
In these slides we start looking at the supply side of markets: how
firm managers make decisions about production.
In the production process, fir

Intermediate Microeconomics
Consumer Demand
Jacopo Magnani
WISE, Xiamen University
1 / 42
Preferences
rational choice
Demand
Budget
constraint
2 / 42
Formally, we are going to think about consumer demand as a function
that tells us how the desired consump

Intermediate Microeconomics
Consumer Preferences
Jacopo Magnani
WISE, Xiamen University
1 / 42
Preferences
rational choice
Demand
Budget
constraint
2 / 42
We are going to model the consumer decision problem in the
following way: the consumer has some weal

Intermediate Microeconomics
Consumer Choice
Jacopo Magnani
WISE, Xiamen University
1 / 26
Preferences
rational choice
Demand
Budget
constraint
2 / 26
We have seen how to model consumer preferences. Clearly consumer
decisions take into account not only pre

Intermediate Microeconomics
Choice Under Uncertainty
Jacopo Magnani
WISE, Xiamen University
1 / 30
We have seen how to analyze the demand for consumption goods.
We have implicitly assumed that there is no uncertainty when
decisions are made (for example c

PART ONE
Solutions to Exercises
Chapter 2
Review of Probability
Solutions to Exercises
1.
(a) Probability distribution function for Y
Outcome
(number of heads)
probability
Y
0
Y
0.25
1
Y
0.50
2
0.25
(b) Cumulative probability distribution function for Y
O

Microeconomics I: Problem Set 4
1. Harding Enterprises has developed a new product called the Gillooly Shillelagh. The market
demand for this product is given as follows:
Q = 240 - 4P
a.
b.
c.
d.
e.
At what price is the price elasticity of demand equal to