FACULTY OF COMMERCE, MANAGEMENT AND LAW BASIC MICROECONOMICS (EMI 3571) ASSIGNMNET TWO 2022 Total Marks: 100 Instructions: This assignment consists of 4 questions. Answer them all. Full marks will be awarded for creativity QUESTION ONE The table below gives the demand and supply schedules for ice cream in Sweetsville in July and November. Assume that the only people who benefit from ice cream are the people who consume it and the only people who bear the cost of ice cream are the people who produce it. Price Quantity Quantity Quantity (dollars per demanded in July demanded in supplied gallon) (gallons per day) November (gallons per day) (gallons per day) 2.00 300 150 0 2.50 250 100 100 3.00 200 200 3.50 150 0 300 4.0 00 0 400 4.50 50 0 500 5.00 0 600 a) Draw the market demand and market supply curves. What are the equilibrium price and equilibrium quantity of ice cream in July and November? Is the allocation of resources efficient in July? Is it efficient in November? Explain. (16 marks) b) What is the maximum price that consumers are willing to pay for the 100th gallon of ice cream in July? In November? What is the minimum price that producers are willing to accept for the 100th gallon in July and November? Explain. (7 marks) ) What happens to consumer surplus and producer surplus in November compared to July? Why? (7 marks) QUESTION TWO Tony's Pizza's production function is shown in the table below. Output (pizzas per day) Labor (workers) Plant 1 Plant 2 Plant 3 Plant 4 8 11 13 14 2 18 22 24 25 3 26 30 33 35 31 36 10 43 5 34 40 45 50 35 42 48 54 7 33 40 47 54 Ovens 2 3 4 Page 13 of 14FACULTY OF COMMERCE, MANAGEMENT AND LAW a) Suppose Tony operates Plant 2. He hires 2 workers and produces 20 pizzas a day. Is the pizzeria technologically efcient? Why or why not? (5 marks) b) Suppose Tony operates Plant 1. He hires 2 workers and produces 18 pizzas per day. Is Tony's Pizza technologically efcient? Why or why not? Can Tony increase production to 22 pizzas a day in the short run? Ifyes, how? (10 marks) c) Suppose Tony operates Plant 3. What is the marginal product of labor when the fourth worker is hired? When operating Plant 3, does Tony experience diminishing marginal returns? Explain. (10 marks) (1) Suppose Tony currently uses Plant 3. Can he increase production from 40 to 50 pizzas per day in the short run? In the long run? Ifyes, how? (5 marks) QUESTION THREE Two university graduates, Bill and Steve, worked for an advertising agency at an annual salary of $40,000 each for 3 years after they graduated. Then, they decided to quit their jobs and start a partnership that designs and builds Web sites. They rented an ofce for $12,000 a year and bought capital for $30,000. To pay for the equipment, Bill and Steve borrowed money from a bank at an annual interest rate of 6 percent. During their first year of operation, the partners' total revenue was $100,000. The market value of their capital at the end of the year was $20,000. IfBill and Steve do not design Web pages, their best alternatives are to return to their previous job. a) What is the firm's economic depreciation? (5 marks) b) What are the partnership's costs? (5 marks) 0) What is the firm's economic profit in the first year of operation? (5 marks) QUESTION FOUR The market for milk is perfectly competitive. There are 1,000 farms in the industry and the relationship between a typical farm's output and total costs is the same as in Problem 2. The market demand schedule for milk is shown in the table below. Price Quantity demanded (dollars per (thousands of gallons _allon er da -m_ a) What is a typical farm's supply schedule and what is the market supply schedule? (7 marks) b) What is the market price? What quantity of milk is sold? (6 marks) 0) What is the output produced by each farm? What type of profit or loss is made by each farm? (6 marks) d) Do farms enter or exit the market? (6 marks) The End Page 14 of 14