Microeconomics Answers

A. Suppose you own a company that supplies vending machine. Currently , your vending machine sells soft drinks at $1.50 per bottle. At that price, customer purchase 2,000 bottles per week. In order to increase sales , you decide to decrease the price to $1.00 and sales increases to 4,000 bottles. Calculate price elasticity of demand.

         B. Suppose the demand curve for a product is given by  q=500-10p 

i.       Compute the price elasticity of this demand function.

ii.      What is price elasticity of demand when the price is $30?

iii.     What is the percentage change in demand if the price is $30 and increased by 4.5%.

An increase in the demand for a good will tend

to cause

Explain the following cases through graph.

(a) Does a change in consumers’ preferences lead to a movement along the demand curve or a shift in the demand curve? 

(b) Does a change in price lead to a movement along the demand curve or a shift in the demand curve?

(c) Does a change in price of raw material lead to a movement along the supply curve or a shift in the supply curve? 

(d) Does a change in price lead to a movement along the supply curve or a shift in the supply curve?

Pikachu wants to open a store to sell pens and ramen. He must borrow $30,000 from Papa Smurf's crew at 105% interest per year. He must pay this money back to Papa Smurf in his first year. He also must rent a storefront for $25,000 per year and hire his friend Patrick Star and pay him $650,000. He quit his job which earned him $250,000 per year. In his first year, he sold 11,000 pens at $3 each and 2500 bowls of ramen at $6 each. A bowl of ramen costs $3 in raw material costs and each pen costs him $2 each. 

For his 1st year please provide (1) his total economic cost (2) his economic profit (3) his accounting profit (4) should he have quit his job?

Pikachu wants to open a store to sell pens and ramen. He must borrow $30,000 from Papa Smurf's crew at 105% interest per year. He must pay this money back to Papa Smurf in his first year. He also must rent a storefront for $25,000 per year and hire his friend Patrick Star and pay him $650,000. He quit his job which earned him $250,000 per year. In his first year, he sold 11,000 pens at $3 each and 2500 bowls of ramen at $6 each. A bowl of ramen costs $3 in raw material costs and each pen costs him $2 each. 

For his 1st year please provide (1) his total economic cost (2) his economic profit (3) his accounting profit (4) should he have quit his job?

Suppose the labour welfare (W) in an industry is defined as W = wl, where w = wage rate

and 1= no. of labour hours employed. Assuming a downward sloping demand curve for

labour, show the impact of a minimum wage policy that leaves the labour welfare unchanged.

he market for vanilla ice cream is given by the following information: 𝑄 𝑑 = 800 − 30𝑃 𝑣 + 10𝑃 𝑐 𝑄 𝑠 = 250 + 30𝑃 𝑣 − 10𝑃𝑚 Where 𝑄 𝑑 is the quantity demanded, 𝑄 𝑠 is quantity supplied, 𝑃 𝑣 is the price of vanilla ice cream, 𝑃 𝑐 is the price of chocolate ice cream and 𝑃𝑚 is the price of milk.

The market for vanilla ice cream is given by the following information:

𝑄

𝑑 = 800 − 30𝑃

𝑣 + 10𝑃

𝑐

𝑄

𝑠 = 250 + 30𝑃

𝑣 − 10𝑃𝑚

Where 𝑄

𝑑

is the quantity demanded, 𝑄

𝑠

is quantity supplied, 𝑃

𝑣

is the price of vanilla ice

cream, 𝑃

𝑐

is the price of chocolate ice cream and 𝑃𝑚 is the price of milk. Let 𝑃

𝑐 = 10 and 𝑃𝑚 = 5. Calculate the equilibrium price and quantity in the vanilla ice 

cream market. Compare the own-price elasticity of demand and supply at equilibrium. (4

a. The market for vanilla ice cream is given by the following information:

𝑄

𝑑 = 800 − 30𝑃

𝑣 + 10𝑃

𝑐

𝑄

𝑠 = 250 + 30𝑃

𝑣 − 10𝑃𝑚

Where 𝑄

𝑑

is the quantity demanded, 𝑄

𝑠

is quantity supplied, 𝑃

𝑣

is the price of vanilla ice 

cream, 𝑃

𝑐

is the price of chocolate ice cream and 𝑃𝑚 is the price of milk.

The marketHappy Holidays is a tour and travel company operating in a competitive market due to the