UNIVERSITY OF GHANA

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ASSIGNMENT SUBMISSION DATE: 14TH FEBRUARY 2025 (10:00 am)

Question 1
!
If the rate of net investment flow over time is given by 𝐼(𝑡) = 3𝑡 " (thousands of Ghana cedis
per year) and the initial capital stock, at time 𝑡 = 0 is 𝑘(0) = 100.
a. What is the time path of capital stock K?
b. What will be the capital stock at time t=10?
c. What will the capital formation be from the 1st to the 4th year?

Question 2
The demand and supply for a product are given by 𝑝! = −1100𝑥 + 200,000 and 𝑝" = 𝑥 # +
2000𝑥 respectively, where x is the quantity demanded, and p is the price (𝑥 ≥ 0; 𝑝 ≥ 0).
d. Calculate the equilibrium quantity demanded and price
e. Calculate the consumer and producer surpluses
f. Provide a sketch of the consumer and producer surplus
g. If the welfare of the society is measured by the sum of consumer and producer surpluses
and government policy leads to an increase in price to 150,000, find the new level of
welfare and hence the change in welfare.
h. Briefly comment on the welfare of society because of the policy.

Question 3
It is well known in Information Economics that an inferior product with a large advertising
budget sells very well when it is introduced but sales decline as people discontinue using the
product due to its inferiority. Assume that the rate of change of weekly sales is given by:
𝑑𝑆 400 200
= −
𝑑𝑇 (𝑡 + 1)$ (𝑡 + 1)#
Where S is sales in cedis and t is time in weeks
a. Find a general function S(t) that describes the weekly sales
b. If in the first week, the sales was 100 cedis, find the specific equation describing the
weekly sales
c. Find the reduction in sales between the 4th and the 9th week.

Question 4
Father Ray who produces coffins is faced with the marginal cost function of the form
𝑥# + 𝑥 + 1
𝑑𝑦 = 𝑑𝑥
(2𝑥 + 1)(𝑥 + 1)#
Where x is the number of coffins produced, and y is the total cost of production. Deduce Father
Ray’s Total cost function if he produces a coffin at a total cost of ¢5.

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Question 5
a. Assume that a shoe manufacturer is faced with the marginal cost function of the form
!% &'(
!&
= &') ,
where x is the number of shoes produced, and y is the total cost of production. Find the
total cost function of the firm if it produces a single shoe and the total cost of producing
that shoe is one cedi.

b. Assume that the firm’s marginal revenue function is given by the equation
𝑑𝑧 $
= 15𝑥(𝑥 + 4)#
𝑑𝑥
where x is the number of shoes produced, and z is the total revenue e. Find the total
revenue function of the firm if it produces a single shoe and the revenue from the sale
of the shoe is one cedi twenty-four pesewas.
c. What will be the profit levels of the firm if it decides not to produce any shoes?

Question 6
John and Eugenia are friends who share many similar characteristics. They both consume goods, x, y,
and z that yield them a total utility expressed as the function: 𝑼 = 𝒛√𝒙 𝒚𝟎
a. Find the marginal utilities (MUs) of goods x, y, and z
b. From your MUs derived from (a) above, explain the relationship between John and
Eugenia’s marginal utilities and each of the arguments of their utility function.
c. Does the law of diminishing marginal utility apply in the cases of the goods they
consume? Provide a prove for your answer.

Question 7
(a) Minimize costs for a firm with the cost function 𝑐 = 5𝑥 " + 2𝑥𝑦 + 3𝑦 " + 800 subject to the
production quota 𝑥 + 𝑦 = 39. (b) Estimate additional costs if the production quota is increased to 40.

Question 8
Given the profit function 𝜋 = 160𝑥 − 3𝑥 " − 2𝑥𝑦 − 2𝑦 " + 120𝑦 − 18 for a firm producing two goods
x and y, (a) maximize profits, (b) test the second-order condition, and (c) evaluate the function at the
critical values x and y.

Question 9
A monopolist sells two products x and y for which the demand functions are
𝑥 = 25 − 0.5𝑃#
𝑦 = 30 − 𝑃$
and the combined cost function is
𝑐 = 𝑥 " + 2𝑥𝑦 + 𝑦 " + 20
Find (a) the profit-maximizing level of output for each product, (b) the profit-maximizing price for
each product, and (c) the maximum profit.

Question 10
Determine the level of homogeneity and returns to scale for each of the following production functions:
a. 𝑄 = 𝑥 " + 6𝑥𝑦 + 7𝑦 "
b. 𝑄 = 𝑥 % − 𝑥𝑦 " + 3𝑦 % + 𝑥 " 𝑦
%# !
c. 𝑄 =
&$ !

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