**1.** The consumer’s demand for good X is described by the function P_{x} = 25 – 0.25x, where P_{x} is the price (in euros) per unit of good X and x denotes the quantity of good X. Suppose that the price per unit of good x increases from 4 euros to 5 euros. Calculate the change in the consumer’s (net) surplus that is associated with this price increase of Y. Illustrate the change in the consumer surplus in the graph. Mark very clearly the area that corresponds to the change in the consumer’s (net) surplus and identify very clearly all the numerical values that are important for calculation of the change of consumer’s (net) surplus.

**2. **The firm requires at least 10 units of input K and 2 units of input L in order to produce one unit of output Y.

**a)** Describe this technology by mathematical function *(use K to denote the quantity of input K and use L to*

* denote the quantity of input L used in the production process).*

**b)** Draw the isoquant that corresponds to 200 units of output Y. ** **

** **

**3. **The firm requires at least 2 units of input K or 4 units of input L in order to produce one unit of output Y.

**a)** Describe this technology by mathematical function *(use K to denote the quantity of input K and use L to*

* denote the quantity of input L used in the production process).*

**b)** Draw the isoquant that corresponds to 60 units of output Y. ** **

** ****4. **Suppose that the price per unit of input A is 12 euros and the price per unit of input B is 6 euros. What is the minimum cost of producing 120 units of output Y for the firm if the firm’s production function is Y = 4A+ 2B *(Please note that A denotes the quantity of input A and B denotes the quantity of input B used in the production process*) _{ }

** ****5. **Suppose that the price per unit of input C is 2 euros and the price per unit of input K is 8 euros. What is the minimum cost of producing 40 units of output Y for the firm if the firm’s production function is Y =min {2C_{ ;} 4K}?_{ }** **

** ****6. **The firm’s production function is Y = min {A; 5B} + 2C. Suppose that the price per unit of input A is 2 euros, the price per unit of input B is 10 euros, the price per unit of input C is 6 euros.

**a)** What is the minimum cost of producing 60 units of output y for?_{ } _{ }

** ****b)** The Government is planning a policy, which envisages simultaneously the following two policies: 1) introduction of a tax of 2 euros per unit of input C; 2) introduction of a subsidy of 2 euros per unit of input B. Explain and justify (provide also calculations for proof), whether this firm would support the planned policy? _{ }

** ****7. **A firm, which is operating in the conditions of perfect competition, produces good Y. The production function of this firm is y(a) = 8a^{1/2} , where *y *denotes the quantity of output Y and *a* denotes the quantity of input A. Thus, the marginal product of input A is MP_{a} = 4a^{-1/2}. Suppose that the the price per unit of input A is 4 euros and the price per unit of output Y is 20 eurot.

**a)** Find the profit-maximizing level of input and the profit-maximizing level of output for this firm.** **

** ****b)** What is this firm’s profit in case of its profit-maximizing output level?** **

**8.** The total costs of a firm operating in perfectly competitive markets are described by the function C(y) = y^{2}+15y+40, where y denotes the quantity (units) of output Y produced by the firm. Thus, the marginal cost of producing good Y is MC(y) = 2y + 15. The market price per unit of output is 25 euros. Find the profit maximizing output level, the firms profits (or loss) and explain briefly (in max 1 or 2 sentences) whether it would be better for this firm to continue producing or to shut down its production in short-run? (*Provide calculations for justification!*)

**9.** Suppose that you have 1 million euros set aside for investment and suppose that there are only 3 investment opportunities available: 1) invest in Project A, which offers 10% return; 2) invest in Project B, which offers 12% return, or 3) invest in project C, which offers 15% return.

**a)** What is your economic profit if you invest in project B?** **

** **

**b)** What is your economic profit if you invest in project C?** **

** **

Subject | Business |

Due By (Pacific Time) | 11/04/2014 11:00 pm |

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