ECONOMICS

Economics



Question 1

Part A

(i)

(ii)

 Produce Surplus  Consumer Surplus  Equilibrium point

At equilibrium point, price will be $ 5 and units produced will be 100.

(iii)

(iv)

(v)

(vi)

Part B

(a)

Change in Quantity Demanded

% change

Chocolate Flavored Milk

2000

2500

25%

Cup Cakes

1000

900

-10%

Change in Price

Cappuccino coffee

$ 1.60 $ 1.80

13%

Using,

Cross Elasticity of Demand

Cappuccino coffee and chocolate-flavored milk

200%

Cappuccino coffee and cup cakes

-80.0%

(b)

Using,

% Change in Quantity demanded

15%

% change in real Income

10%

Income Elasticity

 

 

150.0%

It means that when the income of the people increases, their purchasing power increases and they can access to more health care products which increases the demand for the health care products.

Part C

The market for small cars when the price of petrol increases

The demand curve will move up since the small cars consumer less petrol therefore, consumer will go after small cars which are more fuel efficient

The market for overseas travel when income increases

Once again, when the purchasing power of income increases, demand for overseas travel will increase and the curve will shift upwards.

The market for computers as production costs rise

As the production costs will increase, supplier will increase the price per unit which will have adverse impact on the overall demand of the computers.

The market for tea when the price of sugar rises

The market for new models of flat screen TVs if there is a large increase in the number of TV commercials promoting new models of televisions

An external stimulus has moved the demand for the televisions.

Price

Quantity Demanded

Total Revenue

Elasticity Coefficient

Demand Elasticity

300

0

0

275

50

13750

11

11

250

65

16250

1.538

2.307692

225

80

18000

0.875

1.6875

200

95

19000

0.421

1.263158

175

115

20125

0.391

1.217391

150

130

19500

-0.192

0.692308

125

145

18125

-0.379

0.517241

100

160

16000

-0.531

0.375

75

175

13125

-0.657

0.257143

50

190

9500

-0.763

0.157895

0

205

0

Question 2

I)

Price

Quantity Demanded

Total Revenue

Elasticity Coefficient

Demand Elasticity

300

0

0

275

50

13750

11

11

250

65

16250

1.538

2.307692

225

80

18000

0.875

1.6875

200

95

19000

0.421

1.263158

175

115

20125

0.391

1.217391

150

130

19500

-0.192

0.692308

125

145

18125

-0.379

0.517241

100

160

16000

-0.531

0.375

75

175

13125

-0.657

0.257143

50

190

9500

-0.763

0.157895

0

205

0

ii) it is not advisable for the firm to increase the price from 200 to 225 since it will culminate in the reduction of overall revenue.

iii) At the price of $175, quantity demanded wil be 115 and revenue will be maximum at the level of $ 20,125.Part B.

Units

Fixed Cost

Varible Cost

Total Cost

Marginal Cost

Average total Cost

Average Variable Cost

Average Fixed Cost

Revenue if p = 115

Profit if P = 115

0

120

0

120

0

400

280

120

0

-120

1

120

10

130

10

400

280

120

115

-15

2

120

30

150

20

400

280

120

230

80

3

120

60

180

30

400

280

120

345

165

4

120

100

220

40

400

280

120

460

240

5

120

150

270

50

400

280

120

575

305

6

120

210

330

60

400

280

120

690

360

7

120

280

400

70

400

280

120

805

405

8

120

360

480

80

400

280

120

920

440

9

120

450

570

90

400

280

120

1035

465

10

120

550

670

100

400

280

120

1150

480

11

120

660

780

110

400

280

120

1265

485

12

120

780

900

120

400

280

120

1380

480

Units

Fixed Cost

Variable Cost

Total Cost

Marginal Cost

Average total Cost

Average Variable Cost

Average Fixed Cost

Revenue if p = 115

Profit if P = 115

0

120

0

120

0

400

280

120

0

-120

1

120

10

130

10

400

280

120

115

-15

2

120

30

150

20

400

280

120

230

80

3

120

60

180

30

400

280

120

345

165

4

120

100

220

40

400

280

120

460

240

5

120

150

270

50

400

280

120

575

305

6

120

210

330

60

400

280

120

690

360

7

120

280

400

70

400

280

120

805

405

8

120

360

480

80

400

280

120

920

440

9

120

450

570

90

400

280

120

1035

465

10

120

550

670

100

400

280

120

1150

480

11

120

660

780

110

400

280

120

1265

485

12

120

780

900

120

400

280

120

1380

480

iv.

Units

Marginal Cost

Average total Cost

Average Variable Cost

Average Fixed Cost

Profit if P = 115

0

0

400

280

120

-120

1

10

400

280

120

-90

2

20

400

280

120

-70

3

30

400

280

120

-60

4

40

400

280

120

-60

5

50

400

280

120

-70

6

60

400

280

120

-90

7

70

400

280

120

-120

8

80

400

280

120

-160

9

90

400

280

120

-210

10

100

400

280

120

-270

11

110

400

280

120

-340

12

120

400

280

120

-420

Part c

(i)

Units

Fixed Cost

Variable Cost

Total Cost

Marginal Cost

Price per Unit

Revenue

marginal Revenue

Profit

0

120

0

120

0

-120

1

120

10

130

10

215

215

215

85

2

120

30

150

20

205

410

195

260

3

120

50

170

30

195

585

175

415

4

120

70

190

40

185

740

155

550

5

120

150

270

50

175

875

135

605

6

120

210

330

60

165

990

115

660

7

120

280

400

70

155

1085

95

685

8

120

350

470

80

145

1160

75

690

9

120

450

570

90

135

1215

55

645

10

120

550

670

100

125

1250

35

580

11

120

660

770

110

115

1265

15

495

12

120

750

870

120

105

1260

-5

390

(ii)

(iii)

(iv)

Monopolistic competition differs from perfect competition in that production does not take place at the lowest possible cost. Because of this, firms are left with excess production capacity.

(v)

Profitability of the firm is greater in monopoly as compared to the under perfect competition,. Given the price $115 and 6 ...