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1. A publisher of educational books has found that the demand function for its
books is given by:
QD + 40.5P = 3000
Because of the range of books the publisher deals with, its supply function for
this type of book is given by
1220P = 1129 + 4QS
where P denotes price in # and QD and QS are the number of books demanded
and supplied respectively.
(a) What is the equilibrium price and quantity in the market for the publisher?
Determine the publisher's revenue.
(b) The government are considering imposing either a tax of #2 per unit
quantity sold or a tax of 15% of the selling price. If the publisher adjusts
the supply function to include the relevant tax, determine the effect on the
market equilibrium. What is the tax revenue and the publisher's revenue in
both situations?
(c) If instead of a tax, the government pays a subsidy of #1.50 to the publisher
for each book sold, determine the new equilibrium conditions and the total
amount of the subsidy that has to be paid by the government. What is the
publisher's revenue now? (25 marks)
2. A firm produces the two goods A and B using inputs K and L. Each unit of A
requires 2 units of K plus 6 units of L. Each unit of B requires 3 units of K plus 4
units of L. The amounts of K and L available are 120 and 180, respectively. What
output levels of A and B will use up all the available K and L? (15 marks)
3. Let the following set of simultaneous equations represent the two related
markets for apples (a) and pears (p).
Apples: Demand curve: QDA = 200- 4PA + 2PP
Supply curve: QSA= -7 + 14PA
Pears: Demand curve: QDP = 104 + 3PA - 8PP
Supply curve: QSP = -4 + 24PP
where PA and PP are the respective prices of the apples and pears, and QD and
QS are the quantity demanded and supplied of the two fruits. Determine the
equilibrium price and quantity for the two related markets. (15 marks)
5. A firm buys the three inputs K, L and R at prices per unit of #10,#5 and #3
MPK = 150 – 4K
MPL = 72 – 2L
MPR = 34 − R
What input combination will maximize output if the firm’s budget is fixed at
#285? (15 marks)