Question

9:13 Done econ 320-assign #04.docx 1. Cyber Cafe has just lower the price of its coffee from Sl to $0.75 given the rexcession and as a result sales increased from 100 to 150 per day. Cyber Cafe's donuts also saw an increased demand from 300 to 400 units a. Calculate the arc price elasticity of demand for coffee. Explain the value of the elasticity calculated as part of this question b. Calculate the arc price clasticity of demand between Cyber Cafe's coffee and donut prices. c. Holding all other things constant, would you expect an additional price reduction of coffee to $0.60 to cause both coffee and donut revenues to rise? Explain.. 2. The Audobon Siociety at Enormous State University is planning its annual fundraising 'Eatathon. The society will charge students SL. 10 per serving of pasta. The society estimates that the total cost of producing x servings of pasta at the event will be Cx) - 350+ 0.10x +0.002x dollars a. Calculate the marginal revenue and total profit. b. Compute the revenue and profit and also the marginal revenue and profit if you have produced and sold 200 servings of pasta c. For which value of xs is the marginal profit is zero? 3. Mary Doe has a total income of $75 which she uses to spend on goods x and y. Price of good x retails for $3. while the price of good y retails for $5. Using the budget constraint and indifference curve analysis, you are asked to a. Graph Mary's comsumption of the two goods based on the prices of the two goods using the budget constraint. b. What is the market rate of substitution of the two goods? c. If the price of good x decreases to $1,show the income and substitution effect of the price change. 4. You are given the following data representing price and quantuty demanded: 10 20 30 40 Price S5 50 Quantity Demanded 160 50 100 120 150 170 a. Using regression analysis, estimate the demand function. b. Calculate and comment on the goodness of fit c. Calculate the correlation coefficient. d. Uising the F-test statistic and assuming aplha=01, test the significance of bl.

Answer 1

A1 Pc- C = ' 8 + P0.75 & 1 0.75 - 1 | 9 = lo o Donuts op - 300 Oq = 150 Op! - 400 (as The arc price dasticity of demand for coffee De- x ? -_150-loox ♡ - ļ ā 0.75-1 = o x = -2.7 . -0.25 loo 1-2 >1. & Thus, the value of clasticity shows that demand for a coffee is elastic. (6 400-300 X 1 = a loo x 1 =-1.33 1 0.75 -1 co. 300 -0.25 300 Thus, both are complements. ( demand for since collee is a elastic, price reduction lead will to increase in Total On the Revenue. other demand hand, cross price of elasticity donuts ako is élastic with respect to price, coffee, reduction of collee to will cause donuts revenues rise.