4 Let U(X,Y} = JXY. LetI = $100, P3 = $10 and P, = $l0 be the initial set ofprices and income. Now, let 13',' rise to $25. What are the substitution and income effects of this change in prices? A) Income effect = -3.3; Substitution Effect = -2.1 B) Income effect = -2.3; Substitution Effect = - l .7 C) Income effect = -1.3; Substitution Effect = - l .7 D) Income effect = -1.7; Substitution Effect = - 1 .3 E} None of the above us: (15 marks} A consumer buys two goods, good X and a composite good '1'. The utility function is given as H (X. Y) = ln3XI". The price of X is Px, the price of Y is Pr and Income is I. l) Derive the demand equation for good X. ( 5 marks) 2) Are the two goods X and Y complements or substitutes? Why?( 5 marks) 3) Suppose that I=$ltl and suppose that initially the P; = $1 and subsequently PAr falls and becomes $0.5 per unit. Calculate numerically the value the price effect as a result of the drop in PX and graph the results. (5 marks} MM Suppose all firms in the market are identical. Each rm has a long run total cost curve LTC = 300 Q: + 0.0103. The market demand curve is Q = 25.000 1000P. Find the long run equilibrium quantity per rm, price, and number of rms in the market Qidtlllmarks) Suppose the market consist of 500 identical rms, and the market demand is given by Q = 50 P . Each rm has a short run total cost curve STE = 0.3 + 25002. 1) What is the short run equilibrium price in this market? (5 marks) 2') What is the prot maximizing quantity for each rm