Barkha gupta 010012_mms.docx

Economics Assignment
1.Suppose that the general demand function for good X is
Qd = 60 – 2Px + 0.01M + 7PR
Where
Qd = Quantity of X demanded
Px = Price of X
M = (average) consumer income
PR = Price of a related good R
(i)Is Good X normal or inferior?
(ii)Are Goods X and R substitutes or complementary?
(iii)Suppose M=Rs.40,000, PR =Rs.20, supply function is Qs = -600+10PX
What is the equilibrium Price and quantity? [Source: Paper Code: 1002-
Business Economics Dt: 01-12-2016] Unsolved-Easy
Solution: (i) Qd = - 2Px Q/ Px = negative
Therefore, Good X is Inferior.
(ii) Qd = + 7PR dQ/dPR = positive
Therefore, Good X and R are substitutes.
(iii) Qd = 60 – 2Px + 0.01(40,000) + 7(20)
Qd= 600 - 2Px
At Equilibrium; Qd = Qs
600 - 2Px = -600+10PX
PX = 100 and Qd = 400
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2.A publishing Company plans to publish a book from the sales data of
other publishers of similar books, it works out the Demand function for
the book as Q= 5000- 5P
(i)Demand Schedule and Demand Curve
(ii) No. of Books sold at Price Rs.25
(iii)Price of selling 2500 copies
[Source: Paper Code: 1003-Business Economics Dt: 24-04-2015]
Unsolved-Easy
Solution: (i)Using equation Q= 5000- 5P;
100 200 300 400 500 600
820
840
860
880
900
920
940
960
980
1000
Price
P= 1000 – Q/5 ….. Isolating P
Qd Price
100 980
200 960
300 940
400 920
500 900
600 880
(ii) Q = 5000 – 5(25) = 4875 Books
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(iii) 2500 = 5000 – 5P
P = 500Rs.
3. Self made question with the help of Youtube (
https://www.youtube.com/watch?v=ZaxpCw6lCe4 ) and class notes.
[ Unsolved – Moderate ]
Year Income (X) Sales (Y) x2
XY
2000 100 20 10000 2000
2001 110 24 12100 2640
2002 140 22 19600 3080
2003 150 30 22500 4500
2004 200 36 40000 7200
2005 210 ?
700 132 104200 19420
132 = 5a + 700b ----1 (multiply by 35)
971 = 35a + 5210b ----2 (multiply by 5)
Subtract equation 2 from 1
(4855 = 175a + 26050b) – (4620 = 175a + 24500b)
235 = 1550b
b = 0.15
Substitute the value of b in equation 1
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132 = 5a + 700 (0.15)
132 = 5a + 105
27 = 5a
a = 5.4
therefore,
y = a + bx
Y = 5.4 + 0.15x
Y = 5.4 + 0.15(210)
Y = 36.9 Sales in year 2005
4. A cut in price from $75 to $60 sees demand for a product rise by from
1,200 units to 1,500 units. What would the price elasticity of demand
be for this product? (Source –
http://textbook.stpauls.br/Microeconomics/page_102.htm question no.
10 ) [Unsolved-Easy]
Solution –> Using the point method of measuring price elasticity of
demand.
Price has fallen by 20% and demand has risen by 25%. Hence, we divide
the change in demand by the change in price.
Ep = (Q2 – Q1 ÷ Q1 × 100) ÷ (P2 – P1 ÷ P1 × 100)
Where; P1 = 75, P2 = 60, Q1 = 1200 & Q2 = 1500
Therefore,
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(1500-1200/1200) ÷
(60-75/75)
= 3/12 X 75/15
Ep = 1.25 Price Elasticity of demand for the product is elastic.
5. Suppose that your demand schedule for bathing soap is as follows:
Price Quantity Demanded
(when Income =
Rs12000)
Quantity Demanded
(When Income =
Rs15000)
5 20 25
8 16 22
11 12 19
14 8 16
17 4 13
(a)Calculate Price elasticity of demand as the price of soap increases
from Rs.5 to Rs.8 when(i) your income is Rs.12000 and (ii) your
income is Rs.15000
(b) Calculate income elasticity of demand as your income rises
from Rs.12000 to Rs.15000 when(i) the price of soap is Rs.14 and
(ii) the price of soap is Rs. 17 [Source: Paper Code: 1002-Business
Economics Dt: 01-12-2016] Unsolved-Easy
Solution: (a) (i) Ep = {Q2 – Q1/(Q1 + Q2 /2)}/{P2 – P1/( P1 + P2 /2)}
Ep = 3*18/6.5*4 = 2.046 …..(P1=5, P2 = 8, Q1=20, Q2 = 16)
(a) (ii) Ep = {Q2 – Q1/(Q1 + Q2 /2)}/{P2 – P1/( P1 + P2 /2)}
Ep = 3*23.5/6.5*3 = 3.615 …..(P1=5, P2 = 8, Q1=25, Q2 = 22)
(b)(i) EI = {Q2 – Q1/(Q1 + Q2 /2)}/{I2 – I1/( I1 + I2 /2)}
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EI = 8*13500/12*3000 = 3 …..(I1=12000, I2 = 15000, Q1=8, Q2 = 16)
(b)(i) EI = {Q2 – Q1/(Q1 + Q2 /2)}/{I2 – I1/( I1 + I2 /2)}
EI = 9*13500/8.5*3000 = 4.764 …..(I1=12000, I2 = 15000, Q1=4, Q2 = 13)
6. Calculate TVC and AVC with the help of the following data:
Outputs 1 2 3
MC (Rs.) 20 16 12
[Source: Self-made] Unsolved- Moderate
Solution: As we know; When FC Is not mentioned it is assumed to be
zero therefore; VC = TC ….. By TC = TFC+TVC
MC = TCn – TCn-1/Qn – Qn-1 = TVn – TVn-1/Qn – Qn-1
Output MC TVC AVC
1 20 20 20
2 16 36 18
3 12 48 16
7. From the following data on the cost of production of a firm calculate
(i) average fixed cost, and (ii) average variable cost of producing four
units and the marginal cost of the fourth unit:
Output 0 1 2 3 4
TC 80 102 112 140 156
[Source: Self-made] Unsolved- Easy
Solution: TFC = TC at zero
TVC = TC- TFC
AFC= TFC/Q AVC= TVC/Q MC= TCn – TCn-1/Qn – Qn-1
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Output TFC TVC TC AFC AVC MC
0 80 0 80 - - -
1 80 22 102 80 22 22
2 80 42 112 40 21 20
3 80 60 140 26.6 20 18
4 80 76 156 20 19 16
8. Complete the following table:
Output Price (Rs.) Total Revenue Marginal
Revenue
1 7
2 6
3 4
4 2
[Source: Self-made] Unsolved- Easy
Solution: TR= Output * Price
MR= TRn – TRn-1/Qn – Qn-1
Output Price (Rs.) Total Revenue Marginal
Revenue
1 7 7 7
2 6 12 5
3 4 12 0
4 2 8 -4
9.Dominant & Dominated Strategies and Nash Equilibrium (Source -
http://www.rasmusen.org/xpacioli/g570/_sessions/02_context/_stest1
/selftest1.htm ) Game 5 [Unsolved - Difficult]
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LEFT RIGHT EDGE
UP -10,0 -10,-1 -10,-1
DOWN -8,-8 0,-10 2,-1
BOTTOM 4,5 7,-10 1,1
1. Which of the following is true?
A. Row has no dominant strategy.
B. Row's dominant strategy is Up.
C. Row's dominant strategy is Down.
D. Row's dominant strategy is Bottom.
2. Which of the following is true?
A. Column has no dominated strategies.
B. Column's strategy of Left is dominated.
C. Column's strategy of Right is dominated.
D. Column's strategy of Edge is dominated.
3. Select which of the following are Nash equilibria:
A. Up, Left
B. Up, Right
C. Down, Left
D. Down, Right
E. Bottom, Left
F. Bottom, Right
G. Down, Edge
H. Bottom, Edge
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I. Up, Edge
J. None of the above
10.Dominant & Dominated Strategies and Nash Equilibrium (Source -
http://www.rasmusen.org/xpacioli/g570/_sessions/02_context/_stest1
/selftest1.htm ) Game 6 [Unsolved - Easy]
LEFT RIGHT
UP 0,3 3,0
DOWN 4,0 0,4
1 Which of the following is true?
A. Column has no dominated strategies.
B. Column's strategy of Left is dominated.
C. Column's strategy of Right is dominated.
2 The Nash equilibrium is
A. Up, Left
B. Up, Right
C. Down, Left
D. Down, Right
E. None of the above
Column
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