Question:

Task A:

1. A consumer splits their income equally between two goods. If the price of one good increases by 10% and their income increases by 5%, show that the consumer's optimal consumption bundle will change despite them being able to afford their original bundle.

2. When estimating a demand function, explain why fitting a line of best fit through observed price and quantity combinations over time is not likely to yield good estimates.

3. If a firm uses only capital and labour, show why the cost minimising combination of inputs sets: .

Task B:

Select a (domestic) public limited company of your choice which has some degree of market power. In an essay of 2400 words or fewer, evaluate the pricing strategies it employs for its core product/business in order to increase its market share and profitability within its industry (at the national level).