Question:
EITHER
Nowadays, there is an urgency in Mauritius to introduce a rapid transit system in order to reduce traffic congestion and shift towards a more efficient mode of transport. As a consultant, you are asked to discuss the economic problems in the transport industry and forecast demand for light rail transport. How would the economic concepts and forecasting methods guide you in your assignment?
OR
(a) Given that the demand function for a monopoly firm is given by AR = 200 - 0.5Q, where AR is Average Revenue and Q is Output,
(i) Write down the MR (Marginal Revenue) function.
(ii) Find out the level of output where price elasticity of demand is unity.
(iii) Suppose you are told that the Marginal Cost (MC) function is given by MC = 100 + Q, calculate the profit maximising output level and the corresponding profit generated, assuming fixed cost is 50.
(iv) If instead of profit maximisation, the firm decides to adopt a revenue maximisation strategy, calculate the corresponding change in price charged by the firm and in the profit realized.
(b) The following functions relate to a hypothetical economy:
Consumption Function: C = 500 + 0.8Y
Investment Function: I = 250
Calculate the (i) equilibrium level of national income
(ii) value of the multiplier
(iii) level of national income if Investment rises to 300
(iv) new equilibrium level of national income if a government sector is introduced, whereby all taxes are endogenous and equal 20% of income while public spending equals 100.