Econ Tutorial

Question 2:

(a) Suppose the income elasticity of demand for pre-recorded music compact disks is +5.0 and the income elasticity of demand for a cabinet maker’s work is +0.5. Compare the impact on pre-recorded music compact disks and the cabinet maker’s work of a recession that reduces consumer incomes by 10 per cent. (2 marks)

(b) How might you determine whether the pre-recorded music compact discs and MP3 music players are in competition with each other? (2 marks)

(c) Interpret the following Income Elasticities of Demand (YED) values for the following and state if the good is normal or inferior; (3 marks total, 1.5 marks per part)

YED= +0.7

YED= -3.4

(d) Interpret the following Cross-Price Elasticities of Demand (XED) and explain the relationship between these goods. (3 marks total, 1.5 marks per part)

XED= + 0.75

XED= -2.5

Question 3:
You are given the following data about two firms:
FIRM A
Quantity 0 1 2 3 4 5 6
Total revenue ($) 0 10 20 30 40 50 60
Average revenue ($) ___ ___ ___ ___ ___ ___ ___
Marginal revenue ($) ___ ___ ___ ___ ___ ___
Total cost ($) 30 42 50 60 76 100 140
Marginal cost ($) ___ ___ ___ ___ ___ ___
Average cost ($) ¥ ___ ___ ___ ___ ___ ___

FIRM B
Quantity 0 1 2 3 4 5 6
Total cost ($) 100 134 154 177 216 266 366
Average cost ($) ¥ ___ ___ ___ ___ ___ ___
Marginal cost ($) ___ ___ ___ ___ ___ ___
Price ($) 140 130 120 110 100 90 80
Marginal revenue ($) ___ ___ ___ ___ ___ ___
Total revenue ($) ___ ___ ___ ___ ___ ___ ___

(a) Complete the two tables above. (4 marks)

(b) Are these firms operating in the short or the long run? (1 mark) Firm A: short run / long run Firm B: short run / long run
(c) Are these firms operating under perfect or imperfect competition? Firm A: perfect / imperfect (1 mark) Firm B: perfect / imperfect

(d) What level of output