College of Administrative and Financial Sciences
Problem Solving 1
| Course Name: MICROECONOMICS | Student’s Name: |
| Course Code: ECON101 | Student’s ID Number: |
| Semester: 2 | CRN: |
| Academic Year: 1441 H | |
For Instructor’s Use only
| Instructor’s Name: | |
| Students’ Grade: Marks Obtained/30 | Level of Marks: High/Middle/Low |
Problem 1
Bill can produce either tables or chairs. Bill can work up to 10 hours a day. His production possibilities are given in the table below:
| Tables | Chairs |
| 0 | 100 |
| 10 | 80 |
| 20 | 60 |
| 30 | 40 |
| 40 | 20 |
| 50 | 0 |
- Construct the production possibilities frontier (PPF) for Bill. Put tables on the Horizontal axis and chairs on the vertical axis.
- What is Bill’s opportunity cost of producing one additional table?
- What is Bill’s opportunity cost of producing one additional chair?
- Currently Bill is producing 20 tables and 40 chairs.
- Is this allocation of resources efficient? Why?
- Show this allocation on the graph and advise Bill how he can be more efficient.
Problem 2
Suppose the market for corn is given by the following equations for supply and demand:
QS = 2p − 2
QD = 13 − p
where Q is the quantity in millions of bushels per year and p is the price.
- Calculate the equilibrium price and quantity.
- Sketch the supply and demand curves on a graph indicating the equilibrium quantity and price.
- Calculate the price-elasticity of demand and supply at the equilibrium price/quantity.
- The government judges the market price is under expectations and announces a price floor equal to $7 per bushel.
- Would there be a surplus or a shortage?
- What would be the quantity of excess supply or demand that results?
- Use the graph to show you results.
