Microeconomics Assignment: Principles of Economics, Term 1 2019

This document provides a detailed solution to a microeconomics assignment from the Principles of Economics course (TECO401), Term 1 2019. The assignment covers topics such as profit maximization in perfectly competitive markets, marginal revenue and marginal cost analysis, consumer surplus calculation, and the impact of supply and demand shifts on market equilibrium. Specific questions address the profit-maximizing output level for a pizza firm, the determination of price and quantity in a market with given demand and cost functions, the graphical representation of demand and supply shifts for ACER laptops, and the analysis of comparative advantage between Kim and Liam in pie and cake production. Additionally, the solution touches upon advertising strategies and dominant strategies in game theory. The document provides step-by-step explanations, calculations, and graphical illustrations to aid in understanding the underlying economic principles.

Economics
Name of the student
Name of the university
Author note

Answer 1
a) For maximizing profit in case of a perfectly competitive market, the marginal revenue
of the perfectly competitive firm will be equal to the marginal cost of the firm.
b) Since, it is known that in case of profit maximization the marginal revenue is also the
price which is also equal to the marginal cost. Therefore, when the price of pizza is
$3.50 per slice, the profit maximizing level of output will be 400 since MC equals
price at that point.
Answer2
P = 80-Q/2
Now TR = P *Q
TR = (80 – Q/2) Q
TR = 80Q – Q2/ 2
Therefore, MR = dTR/dQ = 80 – Q
Given, MC =Q
Diagrams for a) and b)

c)
Since, MR =80-Q and MC=Q
MR=MC
80-Q = Q
Q = 40
Now, P = 80- Q/2
P = 80-40/2
P = 60
d)
Profit = revenue – cost
Here revenue = P*Q = 60*40 = $2400

Total cost = 400
Profit = 60×40−400−402/2= $1,200
e)
consumer surplus
(80-60)*40 / 2 = $400
Answer 3
a)
Figure 1 Increase in demand
When the Price of ACER falls, the demand for Acer will increase. Since the price falls,
people will b e buying more of it.

Figure 2 Increase in demand
When the price of ASUS and DELL increase which are the substitutes of ACER, the demand
for ACER will increase since the price will fall and people
c)

Figure 3 Increase in supply
Since the programmers who develop operating system for ACER becomes cheap, the
supply of ACER will increase and therefore the price will decrease.
d)
P = 24 – 2Qd
P = 6 + 4Q
Equating the two equation
24-2Qd = 6+4Qs
24-6=4Q+2Q
6Q=18
Q=3
Now, P = 6 + 4*3

6+12 = 18
The equilibrium price is 18 and the equilibrium quantity is 3.
Answer 3
pies cakes
Kim 100 400
Liam 150 300
a)
Kim produces 50 pies and 200 cakes. Liam produces 75 pies or 150 cakes
b)
Liam should make pies since it has ab solute advantage in producing pies. Kim should
produce cakes since it has absolute advantage in producing cakes.
Answer 5
b)
As the economic profit of Virgin Australia will fall, it should be advertising more
c)
No the player will not have any dominant strategy.

Reference list
Baumol, W.J. and Blinder, A.S., 2015. Microeconomics: Principles and policy. Nelson
Education.
Cowell, F., 2018. Microeconomics: principles and analysis. Oxford University Press.
Friedman, L.S., 2017. The microeconomics of public policy analysis. Princeton University
Press.