SOKOINE UNIVERSITY OF AGRICULTURE

Department of Agricultural Economics and Agribusiness

AEA 601/CAEC 501: Microeconomic

Assignment 2 08 March 2021 Due: After one week

QUESTION ONE
A production process requires labour and machinery. Labour and machinery
cost 20 units per hour each. Technology available for the production of one unit
of output is as follows:

Input Technology
T1 T2 T3 T4 T5
Labour 2.0 3.0 4.0 5.0 6.0
Machine 6.0 4.5 4.0 3.7 3.5
(i) Plot an isoquant for these possible technology packages
(ii) Determine the cost of producing one unit of output using each technology
package
(iii) Which technology package is the cheapest?
(iv) Find the total cost of producing output levels of 5, 10, 20, 25 and 30 using
the cheapest technology package
(v) Plot the total cost curve

QUESTION TWO
Derive the conditional and unconditional factor demand functions associated
with the following production functions:

(i) Y = AX1b1 X 2b2

(ii) Y = A[bX1-g + (1-b)X2-g]-ν/g

QUESTION THREE
Derive the product supply functions associated with the following production
functions:
(i) Y = AX1b1 X 2b2
(ii) Y = A[bX1-g + (1-b)X2-g]-ν/g
(iii) Y = a0 + a1X1 + a2X2 + 0.5b1X12 + 0.5b2X22 + b3X1 X2

QUESTION FOUR
Consider the Cob-Douglas production function
Y = La K1-a
Where L = Labour, K = Capital, Y = output and a is restricted to values 0<a<1.
(i) Is the function homogeneous and if so, of what degree?
(ii) Find the marginal products of L and K
 (iii) Are these marginal products homogeneous and if so, of what
degree?
(iv) Find the rates of change of these marginal products due to changes
in labour and capital. What can you say about the rates of change?
(v) Does the law of diminishing marginal productivity hold for this
production function?

QUESTION FIVE
Suppose duopolists are in a quasi-competitive situation with aggregate demand
function
and costs for duopolists 1 and 2 are

Calculate p, q1 and q2 and profits for each duopolist

QUESTION SIX
Given Qs = -8+4P and Qd = 40-2.85P for maize in Tanzania. What is the effect of
a $2 per bag subsidy to producers? Show the effect that this will have on
equilibrium price and quantity and examine the total costs and benefits to
producers and consumers and taxpayers in the Tanzania