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    An economy is operating on it's PPF. If the output of capital goods is increased then the output of consumer goods will

    A) Increase in the short run, but decrease in the short run.
    B) Decrease in the short run, increase in the long run

    C) Increase in the short run and increase in the long run
    D) Decrease in the short run and decrease in the long run

    I think it's B, as the country will have to spend a lot of it's resources on investing and capital, but in the long run this means it can produce more. Can anyone confirm? Thanks
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    One more please :p: :puppyeyes:

    One of the main functions of the price mechanism in a free market economy is to:

    A) provide free goods
    B) ration scarce goods
    C) ensure that incomes are evenly distributed
    D) keep prices stable

    pleaaaaaaaaaaaaase

    I think it's B but I dont know why and how I got that
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    (Original post by Vesta)
    An economy is operating on it's PPF. If the output of capital goods is increased then the output of consumer goods will

    A) Increase in the short run, but decrease in the short run.
    B) Decrease in the short run, increase in the long run

    C) Increase in the short run and increase in the long run
    D) Decrease in the short run and decrease in the long run

    I think it's B, as the country will have to spend a lot of it's resources on investing and capital, but in the long run this means it can produce more. Can anyone confirm? Thanks
    I also think it's B.

    (Original post by Vesta)
    One more please :p: :puppyeyes:

    One of the main functions of the price mechanism in a free market economy is to:

    A) provide free goods
    B) ration scarce goods
    C) ensure that incomes are evenly distributed
    D) keep prices stable

    pleaaaaaaaaaaaaase

    I think it's B but I dont know why and how I got that
    Again, I also think it's B.
    The price mechanism rations scarce goods to reflect conditions in supply and demand.
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    (Original post by alex_hk90)
    I also think it's B.


    Again, I also think it's B.
    The price mechanism rations scarce goods to reflect conditions in supply and demand.
    How do I explain that to get 4 marks?

    Thanks for the help , I'll try to remember to give you rep tomorrow
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    This diagram shows the effect of an increase in demand for cherry tomatoes. this will cause:

    A) produxcer surplus and consumer surplus to increase

    B) consumer surplus and producer surplus to decrease

    C) producer surplus to decrease and consumer surplus to remain unchanged

    D) no change in either consumer or producer surplus.

    i really cant work this one out, surely the producer surplus increases and consumer decreases?

    please help me thank you so much
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    (Original post by Vesta)
    This diagram shows the effect of an increase in demand for cherry tomatoes. this will cause:

    A) produxcer surplus and consumer surplus to increase

    B) consumer surplus and producer surplus to decrease

    C) producer surplus to decrease and consumer surplus to remain unchanged

    D) no change in either consumer or producer surplus.

    i really cant work this one out, surely the producer surplus increases and consumer decreases?

    please help me thank you so much
    I would say that it is (a), both consumer surplus and producer surplus increases.
    If I remember correctly, consumer surplus is the triangular area representing the difference between what consumers would have been willing to pay for the good and what they actually paid. Similarly, producer surplus is the triangular area representing the difference between what producers would have been willing to sell the good for and what they actually received. Both these areas increase when demand shifts outward.
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    (Original post by Vesta)
    How do I explain that to get 4 marks?
    I'm not exactly sure... maybe consider what would happen without a price mechanism (how would scarce goods be allocated otherwise?). Or maybe you could explain how changes in supply and demand (causing shortages and surpluses) are dealt with by changing prices. For example, if demand increases for a product there will be a shortage unless price is also increased.
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    Hi, I was wondering if you could solve this question for me.

    Which of the following production functions exhibit constant returns to scale (there can be more than one)?

    α. Q = Min[10K,3L]

    β. Q = A + K0.5L0.5, A > 0

    γ. Q = L + 3K

    δ. Q = Min [K0.5,L0.5]

    Saad
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    (Original post by alex_hk90)
    I'm not exactly sure... maybe consider what would happen without a price mechanism (how would scarce goods be allocated otherwise?). Or maybe you could explain how changes in supply and demand (causing shortages and surpluses) are dealt with by changing prices. For example, if demand increases for a product there will be a shortage unless price is also increased.
    True. If there is an increase in demand, then good and services are rationed to the highest bidders. As a result a higher price is paid by those who are willing, and those who aren't simply go without.

    You could also have got to that answer by giving reasons against the other three.
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    (Original post by SaadMohammed)
    Hi, I was wondering if you could solve this question for me.

    Which of the following production functions exhibit constant returns to scale (there can be more than one)?

    α. Q = Min[10K,3L]

    β. Q = A + K0.5L0.5, A > 0

    γ. Q = L + 3K

    δ. Q = Min [K0.5,L0.5]

    Saad
    You can solve this by simply seeing if kQ = A + kK0.5kL0.5 (for B) and so on.
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    (Original post by Apagg)
    You can solve this by simply seeing if kQ = A + kK0.5kL0.5 (for B) and so on.
    Hi,

    Thanks.

    What i dont understand is part (d). I know that it is not showing constant returns to scale, but how do i show that methematically with the MIN there??
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    Well, for d), Q = 0.5K OR 0.5L, so just show that for each of those constant returns either does or doesn't hold. If you increase both K and L by the same factor, Q will increase by that factor, so you have constant returns, as far as I can tell
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    My apologies,

    the function did not appear correctly when i copied it from Word.

    Here is the correct one:

    Q = Min [K^0.5,L^0.5]

    Any help would be greatly appreciated.
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    Ok

    So we have

    Q = K^0.5
    OR
    Q = L^0.5

    now multiply both L and K by a factor, h

    Q = hK^0.5
    OR
    Q = hL^0.5

    So multiplying both inputs by the same factor increases Q by the same factor, as Q = K^0.5 -> hQ = hK^0.5
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    That would imply constant returns to scale. (correct me if im wrong)

    but since Q=k^0.5, hQ = (hk)^0.5,

    and thus, hQ > (hk)^0.5 so decreasing returns to scale??
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    No, that's wrong.

    When you multiply by a constant factor, the following occurs:

    Q=k^0.5, hQ=h(k^0.5)
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    (Original post by SaadMohammed)
    That would imply constant returns to scale. (correct me if im wrong)

    but since Q=k^0.5, hQ = (hk)^0.5,

    and thus, hQ > (hk)^0.5 so decreasing returns to scale??
    That'll teach me to post late at night after 7 hours of travelling, I completely forgot how Cobb Douglas functioned.
    Yes, multiplying through by a constant in fact gives you

    (h^0.5)(k^0.5), or (h^0.5)Q, which as you say is < hQ. So yes, decreasing returns.
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    Thanx. Ive got another one for you:

    C(q) = 0 if q = 0 and C(q) = 160 + 2q + 10q^2 + qQ (where Q is the total output of the industry)
    MC(q) = 2 +20q + Q
    AC(q) = 160/q + 2 + 10q + Q
    Demand = Q = 800 – P

    by equating AC = MC, we get q*=4, and p*=82+Q.
    plugging p* into 600-P, we get Q=359, and P=441.
    and since Q=nq, we get the number of firms as 89.75.

    Will the correct answer be 89, 90, OR 89 with the one firm producing 3 units instead of 4?? (Market is perfectly-competetive)
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    Hang on, what's the question?
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    Consider a perfectly competetive market. Assume that the long term cost function of a firm takes the following form:

    C(q) = 0 if q = 0 and C(q) = 160 + 2q + 10q^2 + qQ

    When choosing its output, each firm takes the total level of output of the
    industry, Q, as given. Hence the corresponding marginal cost curve is
    MC(q) = 2 +20q + Q. The market demand curve is Q = 800 – P, where Q is the total quantity sold in the market and P is the price of the good. Compute the equilibrium price, the total quantity supplied in the market, the output of a single firm and the number of firms active in the market.
 
 
 
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