Assignment:
Question ONE
(a) Using regression equation estimate the demand function for meals served in ordinary hotels in Nairobi. The data regarding price charged and number of meals served are as follows:
|
HOTEL
|
1
|
2
|
3
|
4
|
5
|
6
|
7
|
8
|
|
Price per meal in shs.
|
30
|
36
|
38
|
281
|
26
|
38
|
32
|
28
|
|
Meals served per day
|
200
|
180
|
170
|
220
|
240
|
180
|
210
|
200
|
Interpret the value of intercept term a and b-coefficient of the estimated regression equation
Y= a+bx
(b) Discuss the factors that are likely to limit the quality demand forecast
(c) Examine the practical importance of demand forecasting
(d) A seller of textile cloth wants to lower the price of its cloth from shs. 150 per metre to shs. 142.50 Per metre. If it's present, sales are 2000 metres per month and further it is estimated that its price elasticity of demand for the product is equal to 0.7. Show
i. Whether or not his total revenue will increase as a result of his decision to lower the price and
ii. Calculate the exact magnitude of its new total revenue
QUESTION TWO
(a) Examine the causes of monopoly market structures
(b) Using well labelled diagrams illustrate and explain how equilibrium price and output are determined within the short run under monopoly
(c) Compare and contrast pure and perfect markets under the following sub-headings
i. Demand curve facing the firm
ii. Optimum resource allocation
iii. Management decisions variables
(d) Describe the relationship between average variable cost and average product and between marginal cost and marginal product.
(e) How is U-shape of average variable cost curve explained by the law of variable proportions
QUESTION THREE
(a) Explain the necessary conditions of price discrimination and point out clearly the justification for price discrimination
(b) A cartel includes large and small companies each with different long run average and marginal cost curves. A cartel requires each member to reduce output by 15% in the short run from the total output produced while behaving competitively for it to maximize profits.
The authority assigns a quota to each firm that is 15% less than the output produced by the firm.
i. Explain why the 15% reduction rule will or will not maximize total profits of the cartel
ii. How would you assign the quota of each firm to maximize total cartel profits
iii. Explain why the cartel would adopt the 15% rule
(c) The theory of third degree of price discrimination predicts that a monopolist will charge a lower price in the market where demand is price elastic and a higher price in the market where demand is price inelastic. Explain your position on this statement.