Due Date: 21st May, 2012
1: a) Explain what economic profit is and what accounting profit is. b) Will Accounting profit be always greater than or equal to economic profit? Explain why. c) Given that Price = 5, Wage rate = 2, Labor employed = 10(per month), quantity sold = 100 (per month), rent of Capital = 1 & Capital employed = 5 (per month). i) Calculate Accounting profit per month.
ii) Assume that instead of the previous business, you could also have taught economics classes and earned 100 $ a month. What would your economic profit be?
2) Define: i) Price elasticity of demand
ii) Price elasticity of Supply.
b) Suppose that decreasing the price of a pen from 10 to 5 Rs. Increases its demand from 500 to 750. Calculate the Price elasticity of demand. c) i) What does perfectly elastic demand mean?
ii) What does perfectly inelastic supply mean?
Explain using diagrams.
3) i) The accompanying table gives part of the supply schedule for personal computers in the United States.
a. Calculate the price elasticity of supply when the price increases from $900 to $1,100.
ii) Amazon.com, the online bookseller, wants to increase its total revenue. One strategy is to offer a 10% discount on every book it sells. Amazon.com knows that its customers can be divided into two distinct groups according to their likely responses to the discount. The accompanying table shows how the two groups respond to the discount.
b. Calculate the price elasticities of demand for group A and group B.
4) The accompanying table lists the cross-price elasticities of demand for several goods, where the percent quantity change is measured for the first good of the pair, and the percent price change is measured for the second good.
a. Explain the sign of each of the cross-price elasticities. What does it imply about the relationship between the two goods in question?
5) The accompanying table shows the price and...