Question 1) Assume that, for a particular demand curve, when price rises from $50 to $60, total revenue falls from $8,750 to $7800.
a. Based on this information, what is the quantity demanded at each price.
b. Without calculating the coefficient of elasticity, is demand over this range elastic or inelastic? How do you know?
Question 2) Consider a firm that has just built a plant, which cost $20,000. Each worker costs $5.00 per hour. Based on this information, fill in the table below.
|
Number of Worker Hours
|
Output
|
Marginal Product
|
Fixed Cost
|
Variable Cost
|
Total Cost
|
Marginal Cost
|
Average Variable Cost
|
Average
Total Cost
|
|
0
|
0
|
|
|
|
20,000
|
--
|
--
|
--
|
|
50
|
400
|
|
|
|
20,250
|
|
|
|
|
100
|
900
|
|
|
|
20,500
|
|
|
|
|
150
|
1300
|
|
|
|
20,750
|
|
|
|
|
200
|
1600
|
|
|
|
21,000
|
|
|
|
|
250
|
1800
|
|
|
|
21,250
|
|
|
|
|
300
|
1900
|
|
|
|
21,500
|
|
|
|
|
350
|
1950
|
|
|
|
21,750
|
|
|
|
3) You've been hired by an unprofitable firm to determine whether it should shut down its operation. The firm currently uses 70 workers to produce 300 units of output per day. The daily wage (per worker) is $100, and the price of the firm's output is $30. The cost of other variable inputs is $500 per day. Although you don't know the firm's fixed cost, you know that it is high enough that the firm's total costs exceed its total revenue. You know that the marginal cost of the last unit is $30. Should the firm continue to operate at a loss? Carefully explain your answer.
4) Annual demand and supply for the Entronics company is given by:
QD = 5,000 + 0.5 I + 0.2 A - 100P, and QS = -5000 + 100P
where Q is the quantity per year, P is price, I is income per household, and A is advertising expenditure.
a. If A = $10,000 and I = $25,000, what is the demand curve?
b. Given the demand curve in part a., what is equilibrium price and quantity?
c. If consumer incomes increase to $30,000, what will be the impact on equilibrium price and quantity?