Question

ASSIGNMENT: Deadline for Submission 3 September 2019 (Total Marks: 30) economist of ABC Corporation provided the firm's marketing manager with th estimate of the demand function for the firm's product: (x-12,000 - 3P, +4P, - IM +2AX where Qx represents the amount consumed of good X, P, is the price of good X, is the price good Y, M is income, and A, represents the amount of advertising spent on good X. Suppo good X sells for $200 per unit, good Y sells for $15 per unit, the company utilizes 2,000 units advertising, and consumer income is $10,000. How much of good X do consumers purchase? Are goods X and Y substitutes or complement Is good X a normal or an inferior good? (3) Q. 2. (a) What is price floor? Evaluate this statement : 'Imposition of price floor generally resul in loss of efficiency (b) The daily demand for Bata shoes is estimated to be: Qo = 100 – 3P+4P.-.01M+2A5 Where P, is the price of Bata shoes, P. is the price of Cooper shoes I, M is average income, represents the amount of advertising spent on Bata shoes. Suppose Bata shoes sells at $25 a pai good C sells at $35, the company utilizes 50 units of advertising, and average consumer incon is $20,000. Calculate and interpret the own-price, cross-price, and income elasticity of demand. (6) Q. 3. (a) What do you mean by returns to scale? Describe the various returns to scale graphicall (3) (b) Using the following production functions determine the various returns to scale production, when both labour and capital increases from 1 to 2 units. () Q - 256°S LOS (ii) Q = 100+ 3K + 2L (3) (iii) Q = 0.5KLP Q. 4. (a) A book publishing house's total cost function is of the form: TC = 12 + 60Q - 15Q+Q This firm produces Q - 10. Calculate TFC, TVC, AFC, AVC, AC, and MC. (6) (b) Now suppose, the total cost changed to TC - 1,000+ 100?. (i) Determine the output level that minimizes average total cost (ATC). At this output levi what are TC. ATC, and MC? Verify that at this output level MC - ATC and that ATC interse MC from below. (ii) Determine the output level that minimizes average variable cost (AVC). At this mizes average variable cost (AVC). At this output lev what is TC, AVC, and MC? (5)

Answer 1

It's mabdamand to answer only first question

Q1) Qx = 12,000 - 3Px + 4Py -M + 2Ax

Px = 200, Py= 15, A = 2,000 , M = 10,000

So Qx = 12,000 - 600 + 60 - 10,000 + 4,000

Qx = 5,460

Now dQx/dPy = 4 > 0

so as price of good y rises, then demand for good X rises, so the two goods are substitutes.

Since dQx/dM = -1

So as income rises , Quantity Demanded falls, so it's an inferior good

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