Question 1. You are given the following individual demand information that represents the demand for typing by students at a local college:
Price per page Tom George Lisa Market
$1.00 20 30 7 ____
$1.50 15 26 6 ____
$2.00 12 22 5 ____
$2.50 9 20 3 ____
$3.00 7 18 2 ____
$3.50 5 15 1 ____
$4.00 3 10 0 ____
$4.50 2 6 0 ____
$5.00 1 4 0 ____
a. Give the market demand for pages per semester at each price.
b. What is the price elasticity of demand between $2.00 and $2.50?
c. What is the relationship between price elasticity of demand and the effect of raising prices on total revenues?
Question 2. You are given the following individual supply information for typing:
Price per page Ann Bob Cory Market
$1.00 10 0 0 ____
$1.50 20 8 0 ____
$2.00 25 14 0 ____
$2.50 30 19 2 ____
$3.00 40 23 4 ____
$3.50 48 26 8 ____
$4.00 55 29 10 ____
$4.50 62 33 14 ____
$5.00 70 35 19 ____
a. Give the market supply for pages per semester at each price.
b. What is the equilibrium price and quantity, using the demand curve in question #1?
c. What happens to the supply curve and price and output if Ann dropped out of the market?
Question 3. The following is taken from the San Jose Mercury News, July 27, 2000:
“The Mexican arm of U.S. Internet giant America Online Inc. said on Wednesday it started a financing program to help aid in the purchase of personal computers, joining a list of companies that have launched similar programs to promote Internet use.
“AOL will be joined in the program by computer giant Compaq Computer Corp. and Mexico’s second-largest banking group Banamex Accival, AOL said in a statement.
“The program, known as ‘PC Facil’ (Easy PC) aims to help clients acquire a PC, enabling them to hook up to the Internet and the ‘unique benefits’ of AOL service, said AOL Director of Markets Erick Sydow. In Mexico there are only an estimated five personal computers per 100 people, which is one of the reasons that Internet use there is still low.”
Using the concepts you learned in this class, explain:
a. Why is AOL subsidizing computer sales in Mexico?
b. What do you conclude about the cross-elasticity of demand for AOL services and computer ownership?
c. Why would Compaq and Banamex also be interested in this effort?
Question 4. The automobile manufacturing industry is considered to be very competitive. Does that mean that the industry can be described as perfectly competitive (using the definition given in your text under “Competitive Markets”)? List the definitions of perfect competition and explain whether or not the automobile manufacturing industry meets each definition. If the industry is not perfectly competitive, what market structure best describes it and why?