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There is monopolistic competition in the shampoo market. One of monopolistic firms
- DG. Company offers a special shampoo. Over a long period of time, G's total costs
(CK) of this special shampoo production (hi) are expressed by the following function
TC=3q3 - 27q? +100q. DG's total revenues (CZK) are given by the following quadratic
function TR = 63.25q - 6q?.
a) What amount of shampoo will DG produce?
b) What price will DG charge?
c) What profit will DG generate?
d) Present all results in an appropriate microeconomic model of G's behaviour.
You are an analyst employed by an airplane manufacturer that last year sold 40,000 ATR-72
aircrafts at $100,000 each. Your market research indicates that:
I. the price elasticity of demand for your aircrafts in −0.5. (or +0.5 in absolute value);
II. the income elasticity of demand for your aircrafts is +3.7; and
III. the cross price elasticity for your aircrafts with respect to the price of a comparable jet
manufactured by a competitor is +1.6.
A. Suppose that you expect a ceteris paribus decrease in average incomes of 10% this
year compared to last year. How many aircrafts do you estimate that your company will
sell this year? How will it impact total revenues? 6 marks
B. Assume now that you do not think incomes will change, but that you expect your
competitor will decrease his price by 4%. Assuming that your company does not change
the price of its aircrafts, how many would you expect your company will sell this year?
Now suppose that the only change you expect is a 7% increase in the price of your
aircraft. Estimate sales this year and discuss the impact on total revenues.
Assume now that you do not think incomes will change, but that you expect your
competitor will decrease his price by 4%. Assuming that your company does not change
the price of its aircrafts, how many would you expect your company will sell this year?
Suppose that you expect a ceteris paribus decrease in average incomes of 10% this
year compared to last year. How many aircrafts do you estimate that your company will
sell this year? How will it impact total revenues?
Suppose that you expect a ceteris paribus decrease in average incomes of 10% this
year compared to last year. How many aircrafts do you estimate that your company will
sell this year? How will it impact total revenues?
Graph the supply and demand schedules for hamburger using $5 through $15 as the value of P?
a) Compare diminishing marginal returns and diseconomies of scale?
b) Use a numerical example to show that increasing returns to scale can co-exist with diminishing marginal return. Make sure you explain how your example answers the question.
c) What are the two components of a firm’s cost in the short run, and what are their definitions?
d) How do the marginal and average products of labour affect a firm's marginal and average variable costs in the short run?
e) What does a firm's short-run total product curve show and what is its significance?
Question 2 /20/
a. Mention any 5 concepts used interchangeably with:
i. Lending rate. (5)
ii. Strict monetary policy (5)
iii. Accommodative monetary policy (5)
b. Mention the types of inequality that were seen most during the period of hard lockdown in South Africa. (5)
Suppose the market for agrochemicals has a supply
Sx=30+A and the demand curve of Dq=240-2q assume that the market is perfectly competitive what would the equilibrium price and quantity be?
