Task: Elasticity

For each pair of items in questions 1 and 2, determine which product is more price elastic (would have a higher price elasticity of demand in absolute value). Explain your answer including identifying the determinant of elasticity.

1. Holiday to Europe and a bag of rice.

2. Weetbix (a brand of cereal) and electricity used in your home.

In the following graph the demand for hot dog rolls has shifted outwards because the price of hot dogs has fallen from $2.40 to $1.80 per package. Use the graph to answer question 3.

3. Calculate the cross-price elasticity of demand between hot dogs and hot dog rolls. Show your calculations and explain your answer in words.

4. Given the information in the article use the demand and supply framework to analyse the market for government provided childcare services. In a separate graph analyse the market for private childcare services. In your answer discuss the elasticity of supply in each case and contrast between the two markets. In addition, identify any shortage or surplus in each
market. (4 marks) - Maximum number of words 250

Task: Costs of Production

1. Suppose the total cost of producing 10 000 tennis balls is $60 000 and the fixed cost is $20 000. What is the variable cost? When output is 10 000, what are the average variable cost and the average fixed cost? - Maximum number of words 40

2. Suppose you go to university and live in a residential college on campus. You pay the college for your room and board. Assume that you would have had to move out of home (with your parents) whether you went to university or taken up a full time job, and that you used some of your savings as payment for tuition). What are two examples of an explicit opportunity cost of attending university? What are two examples of an implicit opportunity cost of attending university? What is an example of a cost of attending university that is not an opportunity cost?

Task: Market Power

1. How does a network externality serve as a barrier to entry? Is this barrier surmountable? Provide one example. Make sure you carefully explain your answer. (2 marks) - Maximum number of words 120

2. Explain why a firm in a perfectly competitive market charges the market price (as set by the market demand and market supply curve). How is this different to a firm in a monopolistically competitive market? (2 marks) - Maximum number of words 80

Task: Business Strategy

Assume that two interior design companies, Alistair and Baine, are competing for customers and, if they both advertise, they would each earn $30 million in profits. If neither advertises, they each earn $50 million in profits. If one advertises and the other doesn't, the firm that advertises earns $40 million in profit while the other earns $20 million in profit.

1. Present the information above in the form of a payoff matrix. Let Baine be the row player and Alistair the column player.

2. Define Nash equilibrium. What is (are) the Nash equilibrium(s) in this game. Explain. Maximum number of words 150

3. Define dominant strategy. Is there a dominant strategy for Baine and, if so, what is it? Explain.