Question

A:OA pomoc 1. The demand for petrol rises from 500 to 600 barrels when the price of a particular scooter is reduced from $375 to $330. Then Gros elasticity of demand for the two goods is: b) -2.22 c) 0.14 d) 0.70 2. In the above example, scooter and petrolare: a) Substitute goods b) Complementary goods c) Inferior goods d) Superior goods Answer Questions 3-6 based on the information available in the following Output (0) Total Cost (TC)$ 311 3. Totalfred cost in the above table is: a) $155 b) $100 c) 5555 d) None of the above 4. Marginal cost of producing 3 units of output is b) $45 c) $100 d) $250 5. The average variable cost of producing five units of output in the tables a) $225 b) $45 c) $35 d) $20 6. Average fixed cost of producing 4 units of output in the table is a) $100 b) $25 c) $20 d) $475 7. If a 5% reduction in the price of a good produces a 3% increase in the quantity demanded, then the price elasticity of demand for this good is a) -1.66 b) -0.60 c) -0.15

Answer 1

1. The cross price elasticity of demand is calculated as,

ed = $\Delta$ Q/$\Delta$P

Here, change in quantity demanded

= 600-500=100

Change in price = 330-375 = - 45

Using the values in the formula

ed = 100/-45

ed = - 2.22

The correct must be option b, - 2.22.

2. In above question petrol and scooter are complimentary goods, because the relationship between price and quantity of any complimentary goods is negative that is fall in the prices of one good leads to the increase in the quantity demanded of the other good. That's why we got the cross price elasticity as negative value of -2.22.

So the correct answer must be option b, complimentary goods.

3. The total cost is given to us in the last coloum of the table. And as you can see that the total cost of producing 5 units is $325.

And since no option matches with the correct answer, the right answer to this question must be option d, none of the above.

4. Marginal cost is nothing but the additional cost of production incurred to produce an additional unit of good. We need to calculate the marginal cots of producing 3 units good. Or the difference between total cost for producing two consecutive units of good.

We can calculate it as,

Total cost for producting 3 units - total cost for producing 2 units.

From the table, this will be equal to

= $250 - $205 = $45.

The correct option must be option b, $45.

5. Now we need to calculate the average variable cost of producing 5 units. So we just need to calculate the total variable cost for producing 5 units and divide it by 5.

We know from the table the total cost of producing 5 units of output is $325 from the table. But we need to calculate the total variable cost.

Total variable cost = total cost - total fixed cost.

Total fixed cost is the cost of production at 0 level of production and from the table we can see tota fixed cost is 100.

Total variable cost = $325 - $100 = $225.

Average variable cots = $225/5 = $45

So the correct answer must be option b, $45.

6. We already calculated the total fixed cost of production from above as $100. Now we need to calculate the average fixed cost of production gor 4 units of output.

This will be calculated as,

= 100/4 = $25.

The correct answer must be option b, $25.

7. We can again use the formula of elasticity of demand mentioned in first question.

ed = change in quantity /change in price

And change in quantity demanded = 3% or 0.03

Change in price = -5% or -0.05 because it reduced.

ed = 0.03/-0.05

ed = -0.60

So the correct answer must be option b, -0.60.

20. The formula for income elasticity is

ed = %change is quantity/%change in income.

And we know ed = 2.

Percentage change in income =20% or 0.2

Percentage change in quantity = (Q2-Q1)/Q1

Here Q1= initial quantity and Q2= final quantity

And we know Q1= 5,000 we need to calculate Q2.

Using formula, 2 = (Q2 - 5000)/5000 × 1/0.2

= 2 × 0.2 =( Q2 - 5000)/5000

= 0.4 × 5000 = Q2 - 5000

= 2,000 + 5,000 = Q2.

Q2 = 7,000.

SO the correct answer must be option b, 7000.

21. Price elasticity of negative number just means that the direction of change in prices and quantity demanded is opposite or in other words the demand curve is downwards sloping.

The correct answer must be option C, the demand curve is downwards sloping.