Bonus tasks for microeconomics (5 %).

1. To reach Paradisevill from Kornvill it takes 1 hour by plane or 5 hours by train. Suppose, a price
for an air trip is $100 and a train trip costs $60. What type of transportation a person would prefer if he/she earns: a) $5 per hour b) $10 per hour c) $ 12 per hour Explain your solution. (0.5%)

2. Billy is an owner of a small shop in a tiny town close to a megalopolis and he should decide either
to continue his business or to find a job in the city. His utility depends on daily income, Y, and the hours devoted to leisure, L. Daily income from a shop is: Y = 20i i2 where i is hours of work for a shop; and daily income from the job in the city is: Y = 14j where j is hours of work in the city. (1%)

3. Maxs income is $25.2, he has bought 3 kilograms of sugar which costs $2 one kilogram, four
bottles of milk with $2.8 per a bottle, and two loafs of bread with $4 per a loaf. His understanding of the utility of these goods are follows: Portions 1 2 3 4 5 Marginal utility of sugar 15 10 8 7 5 Marginal utility of milk 12 11 10 7 6 Marginal utility of bread 10 8 6 3 1

Prove that Max could not reach a maximum utility with his budget. Find an optimal consumption choice. (0.3%)

4. Robert had a position as a financier at the ABC company and earned $300000 a year. Now he
wants to start his own business. For that, he would like to invest his own savings $500000 and to

borrow money from the XZY bank - $200000 with an annual interest rate of 20%. He is sure his business will bring him $1200000 a year, the expenditure for rental payments, wage, and materials will make $700000 a year. Suppose that the highest interest rate for deposits is 10% a year. What is an expected accounting profit? Could he expect any economic profit? Should he start his own business? (0.5%)

5. In the market with perfect competition, a price of a good A is $70. Total expenditure of a firm,
which is functioning in this market and producing this good A, could be expressed through a function: TC = Y3 - Y +3. Find total production and maximum profit of this firm. (0.7%)

6. Demand function for monopolistic production is YD= 24 2P, total expenditure function:

TC = Y2+18. Find a price and production volume of that monopolist. Find maximum profit without price discrimination. What profit would the monopolist have if he/she would undertake price discrimination? (0.5%)

7. A firm produces juice boxes (thousands boxes a year) and acts in the market with monopolistic
competition. A function of a marginal revenue is: MR = 10 - 2Y, and an increasing part of a longrun marginal cost curve is described with a function: LRMC = 2Y-2. If a minimum value of longrun average cost (LRAV) is 6, then what an excess of a production capacity will a firm have? (0.5%)

8. A firm is a perfect competitor in the goods and labour markets. With a given capital, firms

technology level could be characterized through a function: Y = 240L 5L2. 1. How much labour should be hired if overall price P = 2 and wage rate W = 120? 2. What will be labour demand in the given conditions if a firm is: a) a monopolist in the goods market and labour market; b) a perfect competitor in the goods market and labour market? (0.5%)

9. A consumer makes a choice between two goods X and Y. Marginal utilities of those goods are in
the table below: Number of goods 1 2 3 4 MUx 20 16 14 12 MUy 48 40 36 32

10

24

Find quantities of goods a rational consumer would by if her daily income is $20, and prices for goods respectively: $2 and $4. (0.5%)