Reference no: EM132373456

1. A consumer consumes two kinds of goods, namely X and Y. The total satisfaction (TU) obtained in consuming both kinds of goods is shown in the equation; (Unit of money in thousands of dollars).

TU = 10X + 24Y - 0.5X2 - 0.5Y2

TU is the total satisfaction in consuming goods X and Y

X is the amount of goods X consumed

Y is the number of items Y consumed

The price of item X is known to be $ 2, the price of item Y is $ 6 and the budget available to buy item X and item Y is $ 44.

Question:

a. Determine how many goods X and the number of goods Y must be consumed so that the consumer gets maximum total satisfaction. Determine the total satisfaction that can be obtained from consuming item X and item Y.

b. If the price of item X drops from $ 2 to $ 1, determine the quantity of item X and the number of items Y must consume in order to obtain maximum total satisfaction. Determine the total satisfaction that can be obtained from the consumption of item X and item Y.

2. A producer has a total cost function: TC = Q2 + 2Q + 66

The demand function is: Q = 10 - 0.2 P

Question:

a. Determine the average revenue (AR), marginal revenue (MR) and marginal cost (MC) functions.

b. What are the outputs and prices that maximize profits?

c. What is the maximum profit?

3. If an industry is formed by six companies. Four companies have sales of $ 10 each, and two companies have sales of $ 5 each.

a. What is the concentration ratio of four companies for this industry? and what does it mean?

b. What is the Herfindahl-Hirschman index for this industry?

c. Explain the differences that occur from calculations with concentrations of 4 companies compared to calculations with HHI?