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.

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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