SOLUTION: King Abdulaziz University Microeconomics Questions


Attached.

TITLE PAGE

Abstract
Microeconomics refers to the con-over of judgment making and riches alprecipitation by ethnical beings
including households, and businesses or firms in stipulations of deportment and choices. Microeconomics
covers aspects such as con-over of chaffer forces (insist and provide), choice richess,
opportunity-absorb and synod intrusion.
This disquisition explains the chaffer forces which are insist and provide principally in fitness to expense.
It too covers the estimation of expense modifiableity of insist using the midsharp-end regularity and
discusses the causes for the shelve in the provide and insist deflexions. Further, optimal expense and
bulk (improvement maximizing sharp-end) which is the sharp-end at which marginal enrichment (MR) equals
marginal absorb including the fitnessship among provide deflexion and marginal absorb (MC), the
equilibrium expense and output, the sharp-end at which insist equals provide are too explained. The
problems enjoy been solved making speculative assumptions.

Answer to Q1
Assumptions
The insist and provide deflexions flourish direct trends.
The provide deflexions are upward sloping.
The primal provide deflexion passes through the commencement.
The new provide deflexion shelves towards the left and the new provide deflexion is correlative to the primal
provide deflexion.
Demand and provide are unsupposable by expense, Ceteris Paribus.

Original and new equilibrium
The commencemental equilibrium for a 25 pulverize box is at a expense of $6.50 per box and bulk of 1
pet boxes (25 pet pulverizes/25 pulverizes). As a development of a gravitate in provide support decay, the new
equilibrium is at a expense of $30 and bulk of 320,000 boxes (8 pet pulverizes/25 pulverizes) due
to a leftward shelve of provide deflexion.
a. Insist deflexion
The x axis displays bulk (Qd) and the y axis shows expense (P). Therefore, the equation takes
the form:
P = -bQd + a where -b is the arise and a is neutralize.
The coordinates are (1000,000, 6.50) and (320,000, 30).

The arise of the insist deflexion is hence:
(30 – 6.50)/(320,000 – 1000,000) = -23.5/680,000
Thus:
P = -(23.5/680,000)Qd + a
At (320,000, 30), the neutralize a is:
P = (-23.5/680,000)Qd + a
30 = (-23.5/680,000)(320,000) + a
a = 41.05
The insist deflexion is therefore: P = 41.05 – (23.05/680,000)Qd

Initial provide deflexion
The x axis displays bulk (Qso) and the y axis shows expense (P). Past it passes through the
origin, the equation takes the form:
P = bQso where b is the arise.
Two coordinates are (0, 0) and (1000,000, 6.50)
Hence, b = (6.50 – 0)/(1000,000-0) = 6.5/1000,000
The primal provide deflexion:
P = 6.5/1000,000Qso

New provide deflexion
The x axis displays bulk (Qsn) and the y axis shows expense (P). After the leftward shelve the
deflexion takes the form:
P = 6.5/1000,000Qso + a
The gradient is the identical as the primal deflexion past it is correlative to it,
It passes through (320,000, 30) and hence ‘a’ is:
P = 6.5/1000,000Qso + a
30 = (6.5/1000,000)(320,000) + a
a = 27.92
The new provide deflexion:
P = 6.5/1000,000Qsn + 27.92

b. Expense modifiableity of insist (PED) using midsharp-end regularity
Quantity reduces from 1 pet to 320,000 boxes when expense increases from $6.50 to $30.
% substitute in bulk insisted = (320,000 – 1000,000)/(320,000+1000,000)/2 = 103.03% gravitate
% substitute in expense = (30 – 6.50)/(30+6.50)/2 = 128.77% rise
PED = -103.03%/128.77% = -0.8 (inelastic)

Price modifiableity of provide (PES) using midsharp-end regularity

Initial provide deflexion
When bulk gravitates by 70%, say from 1000,000 to 300,000, suppliers succeed be succeeding to provide
at:
P = (6.5/1000,000)(300,000)
P = 1.95
Hence, when bulk gravitates from 1000,000 to 300,000, expense gravitates from $6.50 to $1.95
% substitute in bulk replete = (1000,000 – 300,000)/(1000,000+300,000)/2 = 107.69%
% substitute in expense = (6.50 – 1.95)/(6.50 + 1.95)/2 = 107.69%
PES = 107.69%/107.69% = 1 (part modifiable)

Answer to Q2
Optimal expense and bulk is when improvements are maximized at MR =MC (Honja, 2015)
Total enrichment (TR):
TR = P(QD)
QD = 40 – 2P

P = (40 – QD)/2
TR = P(QD)
TR = (QD)(40 – QD)/2
TR = 20QD – QD^2/2
MR = d(TR)/d(QD)
MR = 20 – QD
MC = P of provide deflexion in the inadequate run (Viner & Viner, 1931)
MC = QS/2
At MR = MC, QS = QD = Q
MR = MC
20 – Q = Q/2
3Q = 40
Q = 40/3
At Q = 40/3
P = (40 – Q)/3
P = (40- 40/3)/3
P = 80

Assuming the consequence bulk is absorbed in a value (such as pulverizes) that demand not be a whole
number, the optimal expense is 80 and the optimal bulk is 13.33.

Equilibrium expense and bulk is when QD = QS
QD = QS
40 – 2P = 2P
40 = 4P
P = 10
At P = 10
Q = 2P = 2(10) = 20
Therefore, th...