Microeconomics Answers

Indifference curve shape between good and bad

you are naighty pine number sell fence panels in a competitive market right now you selling price &130 for a fence panel and you sell 8 panels a day. you are considering changing your price you estimate that if younraise your price to $152 a panel you would sell 7 panels a day. on the othet hand, if you lower your price to $108 a panel you will sell 13 panel a day

If the demand function of a commodity is Q = 36 − 4P, where P and Q are price and quantity respectively, determine the price elasticity of demand when the price is R5. Indicate whether demand is elastic or inelastic at this price and provide justification for your answer. [1] εd = −1,25; because | − 1,25| = 1,25 > 1, demand is elastic [2] εd = −0,25; because | − 0,25| = −0,25 < 1, demand is elastic [3] εd = 0,25; because |0,25| = 0,25 < 1, demand is inelastic [4] εd = 1,25; because |1,25| = 1,25 > 1, demand is inelastic Explain

Qantas identified that its business traveller customers have a less elastic demand curve for airline travel than non-business customers, as well as shorter intervals between forward and return trips.

a)    Explain how this market situation provides an opportunity for third-degree price discrimination to increase Qantas profits over a common ticket price for all travellers.

b)   Suppose that at the current ticket price, the price elasticity of demand for their customers is 0.8. What does this imply for Qantas profits and a more sensible price strategy?

c)    Assume that the MC per return ticket is constant. Furthermore, suppose Qantas uses the third-degree price discrimination strategy you proposed in (a) and finds that the demand elasticity for return flight tickets with shorter intervals is 2.0, while that for flights with longer intervals is 4.0. Explain with maths how prices in the two markets relate to one another. 

c.  Suppose that capital input (the number of buses) is decreased by 3 percent next year (which, certain older buses are taken out of service). Assuming that the other inputs are held constant, determine the approximate percentage change in output.

d.  What type of returns to scale appears to characterise the transportation system (ignore the issue of statistical significance)?

e.  Discuss some of the methodological and measurement problems one might encounter in using time-series data to estimate the parameters of this model.  

Consider the following Cobb-Douglas production function for the bus transportation system in a city:

 Q = L^β1F^β2B^β3 , Where L = labour input in worker hours  F = fuel input in gallons  B = capital input in a number of buses  Q = output measured in millions of bus miles  

Suppose that the parameters (α, β1, β2 and β3) of this model were estimated using annual data for the past 25 years. The following results were obtained:  

β1 = 0.45, β2 = 0.20 and β3 = 0.30

a.  Determine the labour, fuel, and capital-input production elasticities

b.  Suppose that labour input (worker hours) is increased by 2 percent next year (with the other inputs held constant), determine the approximate percentage change in output.

1. Economists have made estimates of the price elasticity of demand for a variety of goods and services.
2. What is the price elasticity of demand and why is it important to estimate it? Provide your own examples to support your answer.

    ii.    The government commissioned a research firm, Super Consulting, to conduct a study on the market demand for cigarettes. The firm reported that the price elasticity of demand for cigarettes is about 0.4. If a pack of cigarettes costs $2 and the government wants to reduce smoking by 20 percent, by how much should the price increase using the midpoint method?

1. Market equilibrium is one of the fundamental concepts in economics.
2. Describe market equilibrium using relevant graphs and discuss market surplus and market shortage. 
3. Suppose the market for kittens from an adoption centre can be described by the following equations:

Demand equation: Q_d = 100 – 20P

Supply equation: Q_s = 130 + 2P

Calculate the equilibrium price (P) and quantity (Q) of kittens. Remember that a negative price for kittens is not allowed. How many kittens will be adopted by humans and how many will be “strays?” 

What would be the effect of the decision on property price. Is there a possibility of a property bubble? 

Marginal analysis is one of the most useful concepts in economic decision making. Discuss and show examples including graphs to support your answer.