Question

1. The demand for petrolies from 500 600 when the price of a particular or is reduced from $375 to $330. Then s tico demand for good 2 in the above and petrole a) Subat good Complemer Interior goods Superior goods Answer Questions 3-6 based on the information v il in the following OM T ost (TC) Tod o in the above 4. Marginal cost of producing units of output 5. The average variable cost of producing the units of output in the 6. Ausgefund out of producing units of but in the 475 7. Ha 5% reduction in the price of a good produces a 3% increase in the quantity demanded, then the price elasticity of demand for this pod is a) -1.66 b) 0.60 c) -0.15 d) 0.20 8. Promoters of rock group know that they charged $8 a ticket, 400 people would buy tickets for a concert and they charged $4 a ticket. 800 people

Answer 1

1) CROSS PRICE ELASTICITY OF DEMAND = % change in quantity demanded for Product A / % change in price of product B

Using Mid Point Formula

% Change in demand of petrol = [(600 - 500)/(500+600)/2] * 100 = 18.18%

% Change in price of scooter = [(330 -375)/(375+330)/2] * 100 = -12.76%

Cross Price Elasticity = 18.18/-12.76 = -1.42

2) Scooter and Petrol are Complimentary Goods.Complementary goods are a pair of goods consumed together. As the price of one goes up, the demand for both the goods fall. Some examples of complementary goods are: Cars and Petrol. Shoes and Polish.

3) Total Fixed Cost is $100. This is because the fixed cost is usually defined as the cost when quantity is equal to zero.

4) Marginal Cost of producing 3 units of output is $45. ( $250 - $205 = $45).

5) Average Variable Cost of producing 5 units of output is $45.

For 5 units of output Total Cost = $325

Variable Cost = Total Cost - Fixed Cost = 325 - 100 = $225

Average Variable Cost = Total Variable Cost / No, of units of Output = 225 / 5 = $45.

6) Average Fixed Cost = Total Fixed Cost / Output = $100 / 4 = $25.