Econ Tutorial

Topics: Economics, Marginal cost, Microeconomics Pages: 2 (370 words) Published: June 20, 2013
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
Quantity0123456
Total revenue ($)0102030405060
Average revenue ($)_____________________
Marginal revenue ($)__________________
Total cost ($)3042506076100140
Marginal cost ($)__________________
Average cost ($) ¥__________________

FIRM B
Quantity0123456
Total cost ($)100134154177216266366
Average cost ($) ¥__________________
Marginal cost ($)__________________
Price ($)1401301201101009080
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...
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