1. Suppose that you have the following demand curve. Q 800 12P .01I

Q = quantity demandedP = price andI=average income.

You know that the current market price is $40 and average income is $40,000

i. Calculate current demand.

ii. Calculate the price elasticity of demand

iii. Calculate the income elasticity of demand

2. Assuming the unit price of a commodity is defined by: P = 90 - 2q, and the cost

function is given as: C = 10 + 0.5 q 2 ,

i. Determine the profit-maximizing level of output and the unit price.

ii. Determine the cost-minimizing level of output

3. Determine whether the following production functions show constant, increasing, or

decreasing returns to scale:

i. Q = L 0.60 K 0.40

ii. Q = 5K 0.5 L 0.3

iii.Q = 4L + 2K

4. Given the cost function: C = 1000 + 10Q1/2 + Q + 2Q 2 , derive the average and

marginal cost functions. At 5 units of output, what are the average and marginal

costs.

5. A monopoly firm wishes to supply two different markets, 1 and 2, with the

corresponding demand functions given as:

P1 = 500 - Q1(Market 1)

P2 = 300 - Q2(Market 2)

P1 and P2 represent the prices charged in markets 1 and 2, respectively, and Q1

and Q2 are quantities sold in markets 1 and 2, respectively.

The cost function is given by: C = 50,000 - 100Q

Find:

i. The profit maximizing output for the monopolist

ii. Allocation of output between the two markets

iii. The price charged in each of the two markets

iv. The total or maximum profit.