Microeconomics question

(a) Using two goods X1 and X2 with their respective prices and, where both goods are normal goods. If the price of good X1 increased from to, Using a clearly labeled diagram, explain and identify using either Hicksain approach or Slutsky approach the:-

i. Total change in demand for X

ii. Substitution effect

iii. Income effect

Question 2

Mr. Omondi demand function for rice is given by

X = 15 + M (25P) -1

Where X = amount of rice demanded, M = income of the consumer, P = price of rice.

Originally, the income of Mr. Hassan is 19,200 per month and the price of rice is kshs. 200/kg. If the price increases to kshs 240/kg, calculate to total effect (TE), substitution effect (SE) and Income effect (IE) emanating from this change in price. Is rice an inferior or a normal good Question 3

(a) Given the following monotonically transformed utility function faced by the consumer

lnU(X, Y) = lnX+0.5 lnY

The price of good X is Px and the price of good Y is Py. Derive the optimal demand (Marshallian demand) function for X and for Y.

Question 4

(a) If the demand function faced by the monopolist is given by Q=150 – 1.5P and his cost function is given by C = 150 + 120Q. Find the quantity and price that maximize the monopoly profit hence find the maximum profit.

(b) It is assumed that the output product by firm is function of capital (K) and labour (L). Given the cob-Douglas production function below,

Q = 16

Find;

i. Marginal physical product of labour (MPPL)

ii. Marginal Physical Product of capital (MPPK)