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With practical example. Discuss the following
1) Elasticity and income Elasticity of demand.
Ii) The relationship between price Elasticity, total revenue and marginal revenue.
III) The factors affecting price Elasticity of demand.
trade-off as to how to allocate resources and has to choose from among the following policy
options.
(a) Policy A: (0, 250); Policy B (250, 0) ; Policy C (250, 350). Discuss and compare
all the policy choices that the policy maker is facing. Can you advocate any one of
these? Give reasons in support of your answer.
(b) Policy X (0, 500) ; Policy Y (500, 0) ; Policy Z (700, 0). Discuss and compare all the
policy choices that the policy maker is facing. Can you advocate any one of these?
Give reasons in support of your answer.
(c) If the policy maker is a utilitarian, then of all the six policy options stated in parts (i)
and (ii), what should have been the chosen policy? What would be the implications
of the chosen policy on egalitarianism? Explain your answer.
Problem 5.8. For each of the following production functions, determine whether returns to scale are decreasing, constant, or increasing when capital and labor inputs are increased from K = L = 1 to K = L = 2. a. Q = 25K0.5L0.5 b. Q = 2K + 3L + 4KL c. Q = 100 + 3K + 2L d. Q = 5Ka Lb , where a+b=
rational decision, Barry gathers information from all possible driving schools, collect
data on their fee structures, number of classes etc. He also spends days in reading
each of their reviews posted online, because Barry wants to make the best decision.
Barry’s final decision is to ‘not take driving classes’. Explain, with reasons, in which
of the following situations would you call Barry’s decision to be a rational decision.
The cross-price elasticity values for three sets of products are listed in the table below. What can you conclude about the relationships between each of these sets of products?
Products Cross-Price Elasticity
A and B = -8.7
C and D = +5.5
E and F= 0.0
Entry Sports Utility Vehicles (SUVs) are quickly gaining popularity among Indonesian vehicle buyers, with owners spending an median of 21 months of their household income to purchase a vehicle in this highly aspirational segment, compared with 18 months for the rest of the market, according to the J.D. Power 2016 Indonesia Sales Satisfaction Index (SSI).
As a market analyst for GM, you are to advise the management on the following scenarios, ceteris paribus:
Scenario 1: The selling price of an SUV rises.
Scenario 2: There is a massive discount on the price of a van.
Scenario 3: Consumers expect the price of an SUV will fall next year.
Scenario 4: A breakthrough automation technology help to lower the cost of producing SUVs.
Rama consumes two goods x and y. Her income is Rs. 1000, x and y are available at a price of Rs. 4 and Rs. 5 per unit respectively. Her utility function is u = xy. (i) Draw her budget line. In the same diagram, shade her new budget set if a tax of Rs.1 per unit is imposed on the consumption of x exceeding 50 units along with an upper limit of 200 units on the consumption of x. Label all important points along with their respective coordinates. (ii) Find her optimum consumption bundle in her new budget set situation
Given the constant elasticity demand function as :
𝑃=𝑎𝑃𝑏 𝑤ℎ𝑒𝑟𝑒 𝑏 𝑖𝑠 𝑡ℎ𝑒 𝑒𝑙𝑠𝑡𝑖𝑐𝑖𝑡𝑦 𝑜𝑓 𝑑𝑒𝑚𝑎𝑛𝑑
a. Show that Marginal Revenue of this function is proportional to the price
(let 𝐾=(1𝑎)1𝑏⁄ ). To simplify the equation.
b. calculate the Marginal Revenue when 𝑒𝑞𝑢𝑖𝑙𝑃=𝑏=−2 and when b=-10.
c. what does your answer mean in terms of revenue facing the firm?
d. If 𝑏=−𝛼 what would this imply for Marginal Revenue and Total Revenue of the firm.
e. Explain how Marginal Revenue and profit maximization would be affected if demand was inelastic.
#340153 on Dec 2023