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ECON 103 Tutorial 3

ECON 103 Tutorial 3. Rob Pryce www.robpryce.co.uk/teaching. Question 1a. Use the quadratic formula to solve: . X = 40 X = 2.5. Question 1b. Use the quadratic formula to solve: . Question 1b. Question 1a. Question 1c. Use the quadratic formula to solve: . a=12 b=90 c=-48.

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ECON 103 Tutorial 3

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  1. ECON 103Tutorial 3 Rob Pryce www.robpryce.co.uk/teaching

  2. Question 1a Use the quadratic formula to solve: X = 40 X = 2.5

  3. Question 1b Use the quadratic formula to solve: Question 1b Question 1a

  4. Question 1c Use the quadratic formula to solve: a=12 b=90 c=-48

  5. Question 1d • Find the output value at which total revenue is £600 if a firm’s demand schedule is

  6. Question 1e • A firm faces the average cost function . At which value(s) of is average cost equal to 40?

  7. Question 2a • Given the following supply and demand functions for a good, find the equilibrium price and quantity: Solve using quadratic formula P = 6 (or -7.2 which we ignore) Q = 16

  8. Question 2a

  9. Question 2b Given the following inverse supply and demand functions for a good, find the equilibrium price and quantity: Solve using quadratic formula, or double to get q = 10 P = 70

  10. Question 3a P Never touches y axis Never touches x axis Q

  11. Question 3b

  12. Question 3c • Does this hyperbolic demand function have constant elasticity with respect to price? Elasticity is constant at -1

  13. Question 3c – Another Proof

  14. Question 3d • Now assume that the inverse demand function changes to . • Does this hyperbola intersect the quantity axis (the horizontal axis)? P 3a Q 3d -10

  15. Question 3d • Now assume that the inverse demand function changes to . • How does the equilibrium of the market change? Q = 4.14 P = 38.28

  16. Question 4a • If total fixed costs are 30, variable costsper unit are q + 3, and the demand function is • p + 2q = 50 • Show that the associated profit function is:

  17. Question 4b • If total fixed costs are 30, variable costsper unit are q + 3, and the demand function is • p + 2q = 50 • Find the break-even levels of output (when total profit = 0) = 0 Use quadratic formula Q = 2/3 or Q = 15

  18. Question 4b • If total fixed costs are 30, variable costsper unit are q + 3, and the demand function is • p + 2q = 50 • Find the level of output where total profit is maximised.

  19. Question 5a • What are the values parameter can assume to make this function suitable for representing demand?

  20. Question 5b • What are the values parameter can assume to make this function suitable for representing supply?

  21. Question 5c • Take natural logarithms on both sides to linearise this nonlinear function

  22. Question 6 Consumption: C = 200 + 0.7(Y-T) Investment: I = 150 + 0.25Y – 1000r Government Spending: G = 250 Taxes: T = 200 Money Demand: L = 0.6Y – 8000r Money Supply: Ms = 1600 Y = C + I + G

  23. Finding the IS equation Y = C + I + G Y = 200 + 0.7(Y – T) + 150 + 0.25Y – 1000r + 250 Y = 200 + 0.7Y – 0.7T+ 150 + 0.25Y – 1000r + 250 T = 200 Y = 200 + 0.7Y – 140+ 150 + 0.25Y – 1000r + 250 Y = 460 + 0.95Y – 1000r 0.05Y = 460 – 1000r Y = 9200 – 20,000r 20,000r = 9200 – Y r = (9.2/20) – (Y/20,000) r IS Y

  24. Finding the LM Equation r LM IS Y

  25. Equilibrium in IS-LM Model

  26. Any Questions? Email: r.pryce@lancaster.ac.uk Web: www.robpryce.co.uk/teaching Office Hour: Thursday 1pm Charles Carter C floor (near C7)

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