College of Administrative and Financial Sciences
Problem Solving 1
|Course Name: MICROECONOMICS||Student’s Name:|
|Course Code: ECON101||Student’s ID Number:|
|Academic Year: 1441 H|
For Instructor’s Use only
|Students’ Grade: Marks Obtained/30||Level of Marks: High/Middle/Low|
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:
- 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.
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.