Demand-supply and market equilibrium

1. Suppose that you have the following demand and supply curve for sneakers:
Qd = 400 – 3P

Qs = 200 + 2P

a) Solve for the equilibrium price and quantity.

2. Suppose that a busy restaurant charges $9 for its octopus appetizer. At this price, an average of 48
people order the dish each night. When it raises the price to $12, the number ordered per night
falls to 42. Assuming that demand is linear, find the demand curve the restaurant faces.
 3. Suppose that you have the following demand and supply curve for pizza:
Qd = 800 – 6P

Qs = 400 + 4P

a) Solve for the equilibrium price and quantity.

4. The estimated supply function for avocados is Q = 68 + 12p - 10p f (where p is price of avocados
in dollars per lb, pf is the price of fertilizer in dollars per lb of fertilizer mix). Determine how
much the supply curve for avocados shifts if the price of fertilizer rises by $2 per lb. Illustrate and
explain this shift in a diagram.

5. The estimated supply function for avocados is Q = 48 + 10p - 5p f (where p is price of avocados in
dollars per lb, pf is the price of fertilizer in dollars per lb of fertilizer mix). Holding the price of
 fertilizer constant, by how much would the price of avocados need to rise to cause an increase of
60 million lbs per month in the quantity of avocados supplied?

Elasticity
1. The increase in the oil prices caused the price of cigarettes to jump 50¢ (25%) in March 2015.
Cigarette sellers found only a 3% drop in smoking a year later. What is the elasticity of demand
for the cigarette in the country? Explain the answer.

2. The demand curve for a good is Q = 80 - 3p. What is the elasticity at the point p = 9?

3. Calculate the price and cross-price elasticities of demand for notebook. The notebook demand
function is
Q = 2400 - 19p + 20pl + 0.1Y
where Q is the quantity of notebook demanded in thousands per year, p is the price of notebook in cents,
pl is the price of laptop in USD per item, and Y is the income of consumers. Assume that p is initially 25¢
per notebook, pp is 500 USD per laptop, and Q is 1,500 notebooks per year.

Consumer choice
1. John has booked two hotels to stay the following 8 nights. He has the bookings of 8 nights stay,
staying in hotel A for 4 nights then in hotel B for 4 nights. He also has opportunity to buy or sell
the bookings in the hotels A and B, respectively for 10$ and 5$. If he has no other source of
income, draw his budget line and write the equation.
2. If the budget line is Y = 1000 = p SS + pCC = 8S + 4C, what is the marginal rate of transformation,
MRT, between S (stakes) and C (cheesecake)?

Costs
 1. Suppose that you observed the following set of data:
Average Business School tuition: $30,000

Average Salary for non-MBA’s: $50,000 per year

Average MBA salary: $90,000 per year.

The length of an MBA program is 2 years and is assumed that and MBA will have a working career
of 20 years after graduation. Further, suppose that, instead of going to get an MBA, you could keep
your current non-MBA job and invest what you could have used to pay for tuition, risk free, at 4% per
year. Compare the options of studying MBA. What is the rate of return of studying MBA?

2. Suppose that you observed the following set of data:

Average Salary for non-MBA’s: $100,000 per year

Average MBA salary: $180,000 per year.

The length of an MBA program is 2 years and is assumed that and MBA will have a working career
of 20 years after graduation. Further, suppose that, instead of going to get an MBA, you could keep
your current non-MBA job and invest what you could have used to pay for tuition, risk free, at 8% per
year.

Compare the options of studying MBA. What is the rate of return of studying MBA?

Production
1. Suppose that you have the following demand curve:
 Q = 120 – 4P + 0.001I

You know that the current market price is $10 and average income is $40,000.

a) Calculate the market’s consumer surplus.

b) Calculate the market’s producer surplus.

2. Suppose that for the production function q = f(L, K), if L = 4 and K = 6 then q = 20. Is it possible
that L = 4 and K = 7 also yields q = 20 for this production function? Why or why not?
3. In the short run, a firm cannot vary its capital, K = 2, but can vary its labor, L. It produces output
q. Explain why the firm will or will not experience diminishing marginal returns to labor in the
short run if its production function is
q = 10L + K

Demand-Supply

The demand curve is Q = 100 - p, and the supply curve is Q = 20 + 3p. What are the equilibrium price
and quantity?

Some cities impose rent control laws, which are price controls or limits on the price of rental
accommodations (apartments, houses, and mobile homes). As of 2011, New York City alone had
approximately one million apartments under rent control. Show the effect of a rent control law on the
equilibrium rental price and the quantity of New York City apartments. Show the amount of excess
demand on your supply-and-demand diagram.
The estimated supply function for avocados is Q = 58 + 15p - 20pf .P is the price of avocado, pf is the
price of fertilizer, Q is the quantity supplied of avocado. Determine how much the supply curve for
avocados shifts if the price of fertilizer rises by $1.10 per lb. Illustrate this shift in a diagram.

Given the estimated demand function for avocados, Q = 104 - 40p + 20pt + 0.01Y, use algebra (or
calculus) to show how the demand curve shifts as per capita income, Y, increases by $1,000 a year.
Illustrate this shift in a diagram. Discuss how this change will affect the market equilibrium.

The demand curve is Q = 80- p, and the supply curve is Q = 10 + 2p. What are the equilibrium price
and quantity?

Elasticity

1)When Apple raised the price of iTunes from 99$ to $129, GS Boyz’s “Stanky Legg” sales dropped
from 22,686 units to 19,692 units. What was the song’s arc elasticity of demand?

2)The demand curve for a good is Q = 100 - 2p. What is the elasticity at the point p = 10 and Q = 80?

3)The demand curve for a good is Q = 1,000 - 2p2. What is the elasticity at the point p = 10 and Q =
800?

4)Calculate the price and cross-price elasticities of demand for coconut oil. The coconut oil demand
function is Q = 1,200 - 9.5p + 16.2pp + 0.2Y. Q is the quantity of coconut oil demanded in thousands
of metric tons per year, p is the price of coconut oil in cents per pound, pp is the price of palm oil in
cents per pound, and Y is the income of consumers. Assume that p is initially 45$ per pound, pp is
31$ per pound, and Q is 1,275 thousand metric tons per year.
5) According to Duffy-Deno (2003), when the price of broadband access capacity (the amount of
information one can send over an Internet connection) increases 10%, commercial customers buy
about 3.8% less capacity. What is the elasticity of demand for broadband access capacity for these
firms? Is demand at the current price inelastic?
Consumer Choice

Ali consumes apples and oranges. He is given four apples and three oranges. He can buy or sell apples
for $3 each. Similarly, he can buy or sell an orange for $2. If Ali has no other source of income, draw
her budget line and write the equation.

Ayla likes pizzas, R, and juice, C. Her utility function is U = 10R2C. Her marginal utilities are MUR
= 20RC and MUC = 10R2. Her weekly income is $90, which she spends on only pizzas and juice. a)
If she pays $10 for a pizza and $5 for a bottle of juice, what is her optimal consumption bundle? Show
her budget line, indifference curve, and optimal bundle, e1, in a diagram
Dale goes to the opera and ice hockey games. Draw a budget line for Dale. If the government
imposes a 25% income tax on her, what happens to her budget line and opportunity set?
Lale loves buying shoes and going out to dance. Her utility function for pairs of shoes, S, and the
number of times she goes dancing per month, T, is U(S, T) = 2ST, so MUS = 2T and MUT = 2S. It
costs Linda $50 to buy a new pair of shoes or to spend an evening out dancing. Assume that she has
$500 to spend on clothing and dancing. a) What is the equation for her budget line? Draw it (with T
on the vertical axis), and label the slope and intercepts.b) What is Linda’s marginal rate of
substitution? Explain. C)Use math to solve for her optimal bundle. Show how to determine this
bundle in a diagram using indifference curves and a budget line.

If the budget line is Y = 500 = pbB + paA = 5B + 10A, what is the marginal rate of transformation,
MRT, between B (banana) and A (apple)? ½????

Production

1.Production function of the Kicker company is as follows:

Q=4LK-0.5L2-0.3K2
Wages are 25 AZN, cost of capital is 40 AZN. Available cost of production is 2000 AZN. Company
wants to maximize production by using optimal labor and capital combination.a. What amounts of
labour and capital should be used? b. What is the total output from the above combination?

2.Production function of Nexus company is as following: Q= 100L- 25L2- 4L3

Q- is the monthly output level

L-is amount of labor for a month bir ay ərzindəişləyənişçisayıdır

a) Find the labor amount that will maximize the average product of labor (APL).

b) Assume that monthly wage is equal 25 AZN. Price of the output is 10 AZN. Calculate the optimal
amount of labor for the company.

3. Production function for the QX company is as following:

Q=2LK-0.2L2-0.1K2

Wages are 40 AZN, cost of capital is 60 AZN. Company wants to maximize the production by using
the labor and capital combination with maximum 1800 AZN production cost.

a) Calculate the optimal combination of labor and capital for the company.

b) Calculate the amount of production with this optimal combination of production factors.

4. Production function for the Booker company is as following::

Q=3LK-0.4L2-0.2K2

Wages are 30 AZN, cost of capital is 45 AZN. Company wants to maximize the production by using
the labor and capital combination with maximum 2100 AZN production cost.

a) Calculate the optimal combination of labor and capital for the company.

b) Calculate the amount of production with this optimal combination of production factors.

5. Short run production function of Tesco is as following:

Q= 100L- 28L2- 4L3

Q- amount of monthly production

L- amount of monthly labor

Assume that monthly wage is equal 35 AZN. Price of the output is 15 AZN. Calculate the optimal
amount of labor for the company.

Costs
Initial cost function of the company was C=12 000 + 2Q. But currently the company has managed to
decrease its costs by 0.4 AZN. If the market price of the output is 5 AZN, determine the output level
to achieve 20 000 AZN profit.

Initial cost function of the company was C=10 000 + 1.5 Q. But currently the company has managed
to decrease its costs by 0.3 AZN. If the market price of the output is 4 AZN, determine the output
level to achieve 15 000 AZN profit.
Assume that fixed cost of the company is 24 000 AZN, variable costs are 12 AZN. If the market price
of the company’s output is 20 AZN, determine the Break Even Output level.

Assume that fixed cost of the company is 18 000 AZN, variable costs are 12 AZN. If the market price
of the company’s output is 20 AZN, determine the Break Even Output level.

Initial cost function of the company was C=15 000 + 2.5 Q. But currently the company has managed
to decrease its costs by 0.5 AZN. If the market price of the output is 4 AZN, determine the output
level to achieve 15 000 AZN profit.