Economics of Enterprise Answers

A firm raised the price of its product from $10 to $15 and as a result its sales fell from 200 units to 150 units. What happened to its average revenue and total revenue.

Gizmo brothers, manufactures two types of hi-tech yo-yo: The Exterminator and the Eliminator. Denoting Exterminator output as Q1 and Eliminator output as Q2, the company has estimated the following demand equation for its yo-yos:

 Q₁= 10-.2P₁ – 0.4Q₂

 Q_{2 =} 20 -0.5P₂ – 2Q₁

The total cost equation for producing Exterminators and Eliminators are

TC₁ = 4+2Q₁²

TC₂ = 8+6Q₂²

a)     If Gizmo Brothers is a profit-maximizing firm, how much should it charge for Exterminators and Eliminators?

b)     What is the profit maximizing level of output for Exterminators and Eliminators?

c)     What is Gizmo Brother’s profit?

Ben makes ice, which he sells to restaurants and at petrol stations. He has one freezer, which is all the capital he owns, and he has one person working for him. When an extreme heatwave hits, the demand for ice increases substantially and Ben has to supply more ice. Initially, Ben does not have the means to buy another freezer and rather employs two more people. What will be considered the "long run" for Ben in his ice-making business?

A. when he starts making a profit

B. when he can buy another freezer

C. when the heatwave is over

D. when he has employed the two extra people

Explain “Before economic growth, there were too few goods, after growth, there is too little time.

Show that the test-taking the overall significance of regression model using ANOVA table to be expressed as 𝑭=R2/𝒌−𝟏⁄(𝟏−𝑹𝟐)𝒏−𝒌

Qz = 4500- 1/8 Pz + 1/5 Pa – 1/9 Pb + 2Y

According to theories, explain the two main reasons why the law of demand is

always valid?

A firm’s demand function for good Z is estimated as follows:

Qz = 4500- 1/8 Pz + 1/5 Pa – 1/9 Pb + 2Y

Where:

Pz is the price of good z,

Pa is the price of good a,

Pb is the price of good b, and

Y is income.

(i) Justify whether the law of demand is valid here.

[5 marks]

(ii) According to theories, explain the two main reasons why the law of demand is always valid?

[5 marks]

(iii) Is good Z a normal good?

[5 marks]

(iv) Explain whether goods a and b are related to good z.

A firm’s demand function for good Z is estimated as follows:

Qz = 4500- 1/8 Pz + 1/5 Pa – 1/9 Pb + 2Y

Where:

Pz is the price of good z,

Pa is the price of good a,

Pb is the price of good b, and

Y is income.

(i) Justify whether the law of demand is valid here.

What do you think caused the large increase in the price of coffee in 1997? Explain your answer.