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Effects of price increase on demand for product

QUESTION 1:

Assuming the price elasticity of a company's product is between -0.3 and -0.4 and the income elasticity of demand is 0.5:

1. Determine the effects a 15% price increase would have on the demand for the product

2. Determine the effect a 50% increase in income would have on the demand for the product

QUESTION 2:

Assuming Q=At ?K ? with Q being the output rate, t being labor input rate, K being the capital input rate, alpha being 0.8 and beta being 0.3:

1. Determine if the company has increasing or decreasing returns on scale.

2. Determine if the company has increasing or decreasing returns on scale if beta is changed to 0.2.

3. Explain whether or not the per unit output of labor depends solely on alpha and beta.

QUESTION 3:

A company made and sold 10,000 bikes last year. When output was between 5K and 10K bikes, the VC was $24. In the output range, each bike contributed 60% of its revenue to FC and profits.

1. What is the price of the bike

2. If the company raises prices by 10%, how many bikes will need to be sold to obtain the same amount of profit as last year

3. If the company raises prices by 10%, and VC increases by 8%, how many bikes will need to be sold to obtain the same amount of profit as last year

QUESTION 4:

Assume the following:

Market Bundle/ Corn consumption (Vertical axis) / Peas consumption (horizontal axis)

1/2/8

2/3/7

3/4/6

4/5/5

5/6/4

6/7/3

7/8/2

8/9/1

1. Draw the indifference curve that includes the above market bundles.

2. Determine a) the MR of substitution of peas for corn, b) how this MR of substitution varies as more corn and less peas are consumed and c) if the change is realistic.

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