1. A good\'s Demand Curve is: Q d = 20 - P, and its Supply Curve is: Q s = 5 + 2
ID: 1194095 • Letter: 1
Question
1. A good's Demand Curve is: Qd = 20 - P, and its Supply Curve is: Qs = 5 + 2P.
a. When P = $10, what is the difference, if any, between Qd and Qs? (5 points)
b. When P = $2, is there surplus or shortage in the market? (5 point)
c. What are the equilibrium values of P and Q? (5 points)
QUESTION 2
1. According to a study, the price elasticity of clothing in the United States is 0.6, and the income elasticity is 1.4.
a. Would you suggest that the ABC clothing company cut its price to increase its revenue? (5 points)
b. What would be expected to happen to the total quantity of clothing sold in the united stated if income rise by 10% (5 points)
QUESTION 3
1.
Number Of Workers
Output
MP
AP
0
0
1
30
2
70
3
120
4
180
5
230
6
270
7
295
8
280
9
260
10
230
2. The table above shows the weekly relationship between output and number of workers for a
3. factory with a fixed size of plant.
a. Fill out the blanks in the table (7 points)
b. At what point does diminishing returns set in? ( 3 points)
c. Find the three stages of production ( 6 points)
QUESTION 4
1. For each of the following functions, describe returns to scale (9 points)
a. Q = 5K +7 L
b. Q = K0.5L0.4
c. Q = KL
Number Of Workers
Output
MP
AP
0
0
1
30
2
70
3
120
4
180
5
230
6
270
7
295
8
280
9
260
10
230
Explanation / Answer
1. A good's Demand Curve is: Qd = 20 - P, and its Supply Curve is: Qs = 5 + 2P.
a. When P = $10, what is the difference, if any, between Qd and Qs? (5 points)
b. When P = $2, is there surplus or shortage in the market? (5 point)
c. What are the equilibrium values of P and Q? (5 points)
ans 1
a)
good's Demand is: Qd = 20 - 10= 10, and its Supply is: Qs = 5 + 2(10) = 25.
Qs-Qd = 15 units , surplus of 15 units
b)
good's Demand is: Qd = 20 - 2= 18 , and its Supply is: Qs = 5 + 2(2) = 9.
demand- supply =9 , so shortage of 9 units
QUESTION 2
1. According to a study, the price elasticity of clothing in the United States is 0.6, and the income elasticity is 1.4.
a. Would you suggest that the ABC clothing company cut its price to increase its revenue? (5 points)
b. What would be expected to happen to the total quantity of clothing sold in the united stated if income rise by 10% (5 points
ans 2. a) No,i would not suggest abc clothing company to cut its price to increase its revenue. because it is not going to increase revenue because price elasticity <1. so cutting price will infact decrease revenue
b)quantity of clothing sold will increase by 14%. elasticty of income= % change in quantity / % change in income
1.4= % change in quantity/ 10
% change in quantity =14%
ans 3 a)
b)
diminishing returns set in at no. of workers,L =4, at MP=60. AFTER THAT MP STARTS FALLING
C) 3 STAGES
STEGE1 INCREASING MP FROM L=1 TO 4
SATGE 2 DECREASING MP FROM L= 5 TO 7
THEN AFTER BECOMING 0 IN BETWEEN L=7 AND 8
SATGE 3 NEGATIVE MP FROM L=8 AND ABOVE
ANS 4
A) Q = 5K +7 L
IF INPUT DOUBLES
Q1= 5(2K)+ 7(2L)= 2 (5K +7 L )=2Q
SO OUTPUT DOUBLES. CONSTANT RETURNS
B) Q = K0.5L0.4
IF INPUTS DOUBLE
Q1= (2K)0.5(2L)0.4
= 20.9 K0.5L0.4= 1.866 Q
SO OUTPUT LESS THAN DOUBLES SO DECRASING RETURNS
c. Q = KL
INPUT DOUBLES
Q1= (2K)(2L)= 4KL= 4Q
SO OUTPUT MORE THAN DOUBLES, SO INCRESING RETURNS
Number Of Workers Output MP AP 0 0 1 30 30 30 2 70 40 35 3 120 50 40 4 180 60 45 5 230 50 46 6 270 40 45 7 295 25 42.14285714 8 280 -15 35 9 260 -20 28.88888889 10 230 -30 23Related Questions
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