Question
(a) Complete the table. State when the coefficient is elastic, inelastic or unitary elastic.
|
Price
|
Quantity demanded
|
Total Revenue
|
Elasticity coefficient
|
Demand elasticity
|
|
$110
|
0
|
|
|
|
|
$100
|
50
|
|
|
|
|
$90
|
100
|
|
|
|
|
$80
|
150
|
|
|
|
|
$70
|
200
|
|
|
|
|
$60
|
250
|
|
|
|
|
$50
|
300
|
|
|
|
|
$40
|
350
|
|
|
|
|
$30
|
400
|
|
|
|
|
$20
|
450
|
|
|
|
|
$10
|
500
|
|
|
|
|
$0
|
550
|
|
|
|
(i) Using the table above draw the diagrams illustrating price elasticity of demand ranges and total revenue curve related to the price elasticity demand ranges.
(ii) Briefly explain whether you advise the firm to raise the price from $30 to $40. Provide numerical justification of your advice.
(iii) Briefly explain whether you advise the firm to raise the price from $70 to $80. Provide numerical justification of your advice.
(b) The table below shows the number of workers and output data.
|
Number of workers
|
Total
product
|
Marginal product
|
Marginal returns
|
|
0
|
0
|
|
|
|
1
|
8
|
|
|
|
2
|
18
|
|
|
|
3
|
25
|
|
|
|
4
|
29
|
|
|
|
5
|
30
|
|
|
(i) Complete the table.
(ii) Using the numbers from the table above, draw a diagram showing total output, marginal products curves and identify marginal returns.
(iii) Consider the following short run average total cost (SRATC) curves. Calculate the long run average cost (LRAC). Draw the diagram showing the relationship between three SRATCs and the LRAC curve.
|
Output
|
SRATC1
|
SRATC2
|
SRATC3
|
LRAC
|
|
0
|
|
|
|
|
|
1
|
50
|
|
|
|
|
2
|
34
|
|
|
|
|
3
|
24
|
|
|
|
|
4
|
19
|
50
|
|
|
|
5
|
30
|
30
|
|
|
|
6
|
48
|
18
|
|
|
|
7
|
|
8
|
|
|
|
8
|
|
15
|
50
|
|
|
9
|
|
34
|
34
|
|
|
10
|
|
50
|
20
|
|
|
11
|
|
|
12
|
|
|
12
|
|
|
18
|
|
|
13
|
|
|
30
|
|
|
14
|
|
|
50
|
|
(iv) Draw the long run average costs curve (based on the data provided) assuming an infinite number of plant sizes. State your assumptions.
(c) The table below shows a cost schedule for a monopoly. Complete the table and draw the diagram.
|
Q
|
P
|
TC
|
MC
|
TR
|
MR
|
|
0
|
110
|
10
|
|
|
|
|
1
|
100
|
35
|
|
|
|
|
2
|
90
|
65
|
|
|
|
|
3
|
80
|
70
|
|
|
|
|
4
|
70
|
110
|
|
|
|
|
5
|
60
|
155
|
|
|
|
|
6
|
50
|
205
|
|
|
|
|
7
|
40
|
270
|
|
|
|
|
8
|
30
|
370
|
|
|
|
i) Using the marginal approach to maximise profits, find the price that monopolist would charge to maximise its profit. What is the level of profit maximising output?