Question 1: Suppose that the firm's cost function is given in the following schedule (where Q is the level of output).
Output
Q (units) Total Cost
0 7
1 25
2 37
3 45
4 50
5 53
6 58
7 66
8 78
9 96
10 124
Determine the:
(a) Marginal cost schedule
(b) Total cost schedule
Question 2: The British Automobile Company is introducing a brand new model called the "London Special." Using the latest forecasting techniques, BAC economists have developed the following demand function for the "London Special":
(Solve using either point or arc elasticity. Consider solving for demand in the two possible price levels. Is this an elastic or inelastic product: do you have pricing power?)
QD = 1,200,000 - 40P
What is the point price elasticity of demand at prices of:
$8,000
$10,000
Question 3: Given the following demand function:
Q = 2.0 P1.33 Y2.0 A0.50
(What is the Advertising Elasticity of Demand? Does advertising work to increase demand?)
Where
Q = quantity demanded (thousands of units)
P = price ($/unit)
Y = disposable income per capita ($ thousand)
A = advertising expenditures ($ thousand)
Determine the following when P = $2/unit, Y = $8 (i.e., $8000), and A = $25 (i.e., $25,000)
a. Price elasticity of demand
b. The approximate percentage increase in demand if disposable income percentage increases by 3%.
c. The approximate percentage increase in demand if advertising expenditures are increased by 5 percent.
Question 4: Suppose that the firm's Production Data is given in the following schedule (where Q is the level of output).
Workers Output
Q (units)
0 0
1 600
2 1000
3 1290
4 1480
5 1600
6 1680
If P=$50 and 2=$14500, how many workers should the firm hire to maximize profits?