Economics of Enterprise Answers

 10. Suppose your university decides to raise tuition fee from Rs. 60,000 per semester to Rs. 80,000 per semester of MBA students. The number of students getting admission is 100. The price elasticity of demand for the students is 0.4. 3 a. Find out the number of students getting admission after the increase in tuition fee. b. Find out the total revenue before and after the increase in tuition fee. c. Explain whether the increase in tuition fee is a wise decision or not on the basis of total revenue findings. 

9. Thompson Steel is a major producer of steel. Management estimates that the demand for the company’s steel is given by the equation QS = 5,000 – 1,000PS + 0.1I + 100 Pa Where, QS is steel demanded in thousands of tons per year, PS is the price of steel in dollars per pound, I is the income per capita, and Pa is the price of aluminum in dollars per pound. Initially, the price of steel is $1 per pound, income per capita is $20,000 and the price of aluminum is $0.80 per pound. a. How much steel will be demanded at the initial prices and income? b. What is the point income elasticity at the initial values? c. What is the point cross elasticity between steel and aluminum? Are steel and aluminum substitutes or complements? d. If the objective is to maintain the quantity of steel demanded as computed in part (a), what reduction in steel prices will be necessary to compensate for $0.20 reduction in the price of aluminum?

8. Samsung Electronics Ltd. manufactures and sells LCD monitors. The current price of a monitor is Rs. 5,000 and quantity sold is 1,000 units per year. The company believes that the price elasticity of demand is –1.5. The company decides to increase the price to Rs. 6,000. (a) How many monitors the company will be able to sell at new price? (b) What will be the effect on total revenue due to the increase in price? (c) Explain whether the increase in price is desirable or not from the viewpoint of its effect on sales and total revenue?

7. The Inquiry Club at Jefferson University has compiled a book that exposes the private lives of many of the professors on campus. Economics majors in the club estimate that total revenue from sales of the book is given by the equation. TR = 120Q - 0.1Q3 Initially, the price is set at $71.60. To maximize total revenue, should the price be increased or decreased? 

6. The advertising elasticity of a firm is 1.5 as advertising expenditure increases from $10 to $12 million. If demand is 50 at an advertising expenditure of $12 million, what will be the demand at an advertising expenditure of $10 million? 

5. A retailer has noticed from the past several months, sales of product x has been close to 200 units per week. On two occasions, however, sales declined to 120 units per week. 2 The retailer notes that during these two periods, the store has reduced Y's price from Rs. 5 to Rs. 4. (a) What is the arc cross-price elasticity between x and y? (b) What level of sales for x would you predict if the price of y is increased to Rs. 6?

4. The marketing manager of the Summers Company must formulate a recommendation concerning the price to be charged for a new product. According to the best available estimates, the marginal cost of the new product will be Rs. 18, and the price elasticity of demand for this product will be 3.0. (a) What recommendation should she make, if Summers wants to maximize profit? (b) If her recommendation is accepted, what will be the new product's marginal revenue?

3. After a careful statistical analysis, the Childester Company concludes that the demand function for the product is, Q = 500 - 3P + 2Pr + 0.1I Where Q is the quantity demanded of its product, P is the price of its product, Pr is the price of its rival's product, and I is the per capital disposable income (Rs.). At present, P = Rs. 10, Pr = Rs. 20, and I = Rs. 6,000. (a) What is the price elasticity of demand for firm's product? (b) What is the income elasticity of demand for firm's product? (c) What is the cross elasticity of demand between its product and its rival's product? 

The demand for a commodity is given by P(Q + 1) = 231 and the supply is given by P - Q = 11 , find the consumer and produce surplus.

Woolworth wants to increase its total revenue from Zambia market. The company already identified two type of customers as high income and medium income and plans to offer a 10%

discount on the cloths it sells. The table shows the sells made from the two groups

High income customers

(sales per month in Kwacha)

Medium income customers

(sales per month in Kwacha)

Sales before 10% discount 1.55 million 1.50 million

Sales after 10% discount 1.65 million 1.70 million

(a) Calculate the price elasticities of demand for high income customers and medium income

customers.

(b) Do you support the discount applied for both type of customers? Explain based on your

results from (a)