Q1. The demand for tobacco is price inelastic. Assume there is a drought that destroys a large portion of the tobacco crop. Explain what happen in the marketplace for tobacco? Will the equilibrium quantity and price change? If so, clarify how? What will happen to the total revenue earned by tobacco farmers?
Q2. Imagine you are a director of a chemical company. An accident has occurred in which chemicals leaked in to the ground water nearby, the community is unaware. Assess the costs involved in cleaning up the water immediately (confessing) versus hiding the fact and possibly paying more in the future. Describe the impact on profitability in both situations.