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risks. Given the following probability of the risks and estimated profit, (5 marks)
a. Calculate the expected profit you could get under each risk probabilities for the
business alternatives.
b. Which business do you select based on the expected profit?
c. By constructing a discrete probability distribution, which business do you select?
d. By calculating the expected mean values, variance, standard deviation and
coefficient of variation, which business do you select?
Business Economic Condition Probability Outcome/
Profit
Expected
Profit
Y
Good economic condition/boom 0.2 900
Normal economic condition 0.5 800
Bad economic condition/recession 0.3 700
Expected Profit
Z
Good economic condition/boom 0.2 1000
Normal economic condition 0.5 800
Bad economic condition/recession 0.3 600
Expected Profit�
a. What is the point elasticity of demand when price is 1.50?
b. What will be your pricing decision if you want to increase total revenue? To increase
or decrease price?
7,400, using the formula for arc price elasticity (5 marks)
a. What is the percentage change in price
b. what is the percentage change in quantity
c. What is the price elasticity of demand?
d. What will be the interpretation of the result
e. What are the determinant factors for the price elasticity of demand for the pizza?
- 2Q. (5 marks)
a) the optimum quantity and the optimum price level
b) the profit/loss on these levels
c) at what price should the monopolist shut down?
d) Show the economic profit (loss) of the firm in a graphic representation
is meter taxi service similar with Ride, Feres and others. If you have to estimate the
demand for the transportation service you provide, (6 marks)
a. What would be the explanatory variables you include in a regression model?
b. Indicate how you may utilize the results of your demand estimation for decisionmaking.
c. How do you make your pricing decision?
d. What do you think is the market structure for meter taxi transportation in Addis? Give
your justifications
Consider an economy’s production is as follows: 1 million pounds of bread (sold at Rs. 2.00 each); 1.2 million pounds of flour (sold at Rs. 1.00 per pound) and 2.3 million pounds each of yeast, sugar & salt (all sold at Rs. 1.00 per pound). Calculate:
a. Output of the economy. (1 mark)
b. Total income of the economy. (2 marks)
What will happen if a shoe firm sells its shoes at a price lower that the opportunity cost of the inputs used in the production process?
Suppose the consumption behavior in problem 1 changes so that C=100+0.9Y. while I remains at 50. a. Is the equilibrium level of income higher or lower than it was in problem 1(a)? calculate the new equilibrium level, Y’, to verify this. b. Now suppose investment increases to I=100, just as in problem 1(d) . what is the new equilibrium income? c. Does this change in investment spending have more or less of an effect on Y than it did in problem 1? Why? d. Draw a diagram indicating the change in equilibrium income in this case.
