The Zambia Catholic University
Course: Introduction to Microeconomics
Assignment Issue Date : 10th March 2025
Assignment Due Date : 28th march 2025
Marks: 10
INSTRUCTIONS :
Answer all Questions
Solutions should be typed and submitted through google classroom
Marks will be deducted for late submission.
Question One
The consumer inverse demand for a watermelons is given by 𝑃=1000−𝑄. The inverse supply
curve of watermelons is 𝑃=200+4𝑄.
i. Calculate the equilibrium price and quantity in the market for watermelons. [3 Marks]
ii. Calculate the consumer and producer surplus associated with (i) [6 Marks]
iii. Calculate the total surplus [1 Mark]
iv. Suppose Government decides to introduce a subsidy of K40 for each bag sold.
Calculate the new equilibrium price and quantity in the market for watermelons.[5
Marks]
v. List any three (3) characteristics of a free market economy. [5 Marks]
Question two
Consider a market for ice cream with three major producers namely HB Limited, Phiri&Sons
Ltd. and Sakala Co.. It is also known that these firms control the majority of the market share.
Together, these firms account for over 80% of the total pork production. High capital
requirements, strict regulatory standards, and the need for extensive distribution networks
contribute to the formidable entry of new players. In addition, the decisions made by one firm
significantly impact the others in the industry. For instance, if HB limited decides to increase
its production output, it affects both the supply chain and pricing strategies of Phiri&Sons
Ltd. and Sakala Co.
REQUIRED
a. What market structure is evident in the ice cream production industry? Justify your
answer [3 Marks]
b. In addition to the above listed features,explain any three (3) other features that the type
of market above may be associated with. [6 Marks]
c. Suppose Phiri&Sons Ltd. decides to increase its prices by 10% and, as a result,
experiences a 5% decrease in quantity demanded.
i. Calculate the price elasticity of demand. [2 Mark]
ii. Discuss the implications of the calculated elasticity for Phiri&Sons Ltd.'s
pricing strategy (3 Marks)
D. Assuming that HB limited decides to decrease its ice cream prices by 5%, analyze the
expected reactions of Phiri&Sons Ltd. and Sakala Co. [6 Marks]
QUESTION THREE
Mbukulu bakery has capital related costs of ZMW 12, 000 per month and can hire labour
from a competitive market at ZMW 1, 000 per month. Assuming the only costs of production
are labour and capital costs.
REQUIRED
a. Use the information to draw the same table in your answer sheet and fill it in with the
correct answers. [12 Marks]
b. Identify the employment levels associated with the three stages of production.[4
marks]
c. Explain why an indifference curve is downward sloping [4 Marks]
QUESTION FOUR
a. Consider an individual with an income of $10 facing the decision of how to allocate their
budget between beer and steak sandwiches. The price of a unit of beer is $1, and the
price of a steak sandwich is $3.
Fill in the table and calculate the utility-maximizing quantities of beer and steak sandwiches
that the consumer should purchase, taking into account their limited income and the prices of
the two goods. (8 Marks) B. Taila Mwale currently works for a corporate advertising firm
where he earns K125, 000 per year. He is considering opening his own firm where he expects
to earn K200,000 per year once he gets established. To run his own firm, he would need an
office and a clerk. He has found the perfect office, which rents for K50, 000 per year. A clerk
could be hired for K35, 000 per year. If these figures are accurate, should Taila open his own
legal practice? Justify (5 marks) [Link] ABC is considering hiring one worker whose
marginal product is 1500 units. Assuming that the worker being considered for hiring is being
paid a wage of K4000 and the price of the output is K4 per unit, Should the worker be hired?
Justify. (5 marks) D. Distinguish between Explicit costs and Implicit costs (2 marks)
QUESTION FIVE
ABC Electronics produces high-end electronic devices, and it aims to optimize revenue by
tailoring prices to different customer segments. The company has implemented the following
pricing strategies: Personalized Pricing ABC Electronics offers personalized discounts to
individual customers based on their purchasing history, loyalty, and willingness to pay. The
discounts vary for each customer, ensuring that the company captures the maximum value
each customer is willing to pay. Quantity Discounts ABC Electronics provides quantity
discounts for bulk purchases. The more units of a product a customer buys, the lower the unit
price. This encourages larger orders from businesses and institutions while maintaining
higher prices for smaller individual purchases. Segmented Pricing ABC Electronics
introduces segmented pricing based on customer demographics. The company offers student
discounts, senior citizen discounts, and corporate discounts. Each segment is charged a
different price based on perceived differences in price sensitivity and purchasing power.
REQUIRED A. i) Identify the type of price discrimination exhibited in the personalized
pricing strategy. Explain your reasoning. (1 mark) ii) Identify the type of price discrimination
exhibited in the quantity discount pricingstructure. Explain your strategy. (1 mark)
iii) Identify the type of price discrimination exhibited in the segmented pricing structure.
Explain your strategy. (1 mark)
iii) Identify the type of price discrimination exhibited in the segmented pricing structure.
Explain your strategy. (1 mark)
[Link] table below shows the relationship between the price of a Product A and the quantity
demand of Product A and B.
i)Calculate the price elasticity of product A if the price of A increases from K7.00 to K8.00
and indicate whether the good is inelastic or elastic ( 4 Marks) ii)Calculate the cross price
elasticity of product B if the price of A decreases from K7.0 to K6.50. Are goods A and B
substitutes or complements ( 4 Marks) iii)If the income of the consumer increases from
K1400 to K1800 .Calculate the Income elasticity of product A and Product B. Are goods A
and B normal or inferior goods ( 9 Marks)
Question 6
What kind of returns
to scale do the
following production
functions
display?
What kind of returns to scale do the following production functions display?
Q7
Question 4 (20
marks)
(a) Calculate the
marginal and
average costs for
each level of output
from the following
total cost data.
(a) Calculate the marginal and average costs for each level of output
from the following total cost data.
(b) Show how marginal and average costs are related.
(c) Are these short-run or long-run cost curves?
(d) Explain how you can tell.
(b) Show how
marginal and
average costs are
related.
(c) Are these short-
run or long-run cost
curves?
(d) Explain how you
can tell.
Q8
Consider a perfectly
competitive firm that
has a total cost of
producing
output given by:
Consider a perfectly competitive firm that has a total cost of producing
output given by: TC=!0Q+Q2
The market price is P = 54.
Find the profit maximizing quantity produced by the firm.
Q9
The following table
reports the total
revenue and the
total cost of Keinko
International, a firm
producing coffee.
Keinko does not
have any fixed
costs.
The following table reports the total revenue and the total cost of Keinko
International, a firm producing coffee. Keinko does not have any fixed
costs.
(a) Complete the
columns for marginal
revenue (MR) and
marginal
cost (MC).
(a) Complete the columns for marginal revenue (MR) and marginal
cost (MC).
(b) In a graph, plot the MR and MC curves and show the profit-
maximizing level of output.
Q10
(b) In a graph, plot
the MR and MC
curves and show the
profit-
maximizing level of
output.
A firm faces the following linear demand for its product, QD = 30 − P/2.
The firm has a marginal cost of production given by MC=8.
(a) Find the expression for the Firm’s marginal revenue.
(b) Plot the MC and MR curves on a graph.
(c) What is the amount of output that the firm should produce?
(d) At what price is the output sold?
Consider a perfectly
competitive firm that
has a total cost of
producing
output given by: TC= 10Q + Q
2
The market price is P
= 54.
Find the profit
maximizing quantity
produced by the
firm.