ECONOMICS FOR MANAGERS

MID SEMESTER EXAMS

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Date: 21-10-08 Qs.1.(10x4) DO ANY FOUR A.) Changes in the demand for newspapers Price Pre-93 Times 45 p Guardian 45p 45p Telegraph Independent 50p Post-93 30p 45p 45p 50p

TWO HOURS HUNDRED MARKS

- Average daily sale~..,,per~entage change Pre-93 Post-93 price sales -40 17.5 376,836 448,962 0 -4.5 420,154 401,705 0 -1.95 1,037,375 1,017,326 0 -15.2 362,099 311,046
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2,196,464 Fill in the blanks

2,179,039

Table above shows us that a 40 percent price reduction of the price of Times led to a 17.5 percent increase in sales. This indicates a price elasticity of demand for the Times of .As a result the Times daily sales revenue fell from to . Only if the price elasticity

wouldhave been greater ~, than_would

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total revenuehave increased.

The competing papers suffered, and the Independent was the closest substitute for the Times(A reduction in 15.2% in sales). The cross elasticity of demand implied by these figures was The cross-elasticity for the Guardian was_and for the Daily Telegraph was B. What is the equilibrium market price and quantity for each of the following pairs of demand and supply curves Demand:p=Rs 100-2q;supply:p=Rs 0+3q Demand:p-Rs 100-2q;supply:q=30 Demand:p=Rs 100;supply:p=Rs20+5q

C.Calculate the elasticity of demand for the demand curve P=1O0-5Qat each of the following price and quantity levels: i)P=90 and Q=2,ii) P=50 and Q=l O,iii)P=5 and Q=19.(Hint-use the point elasticity formula) D.Here are data for total production costs of a manufacturing firm at various levels of output Output(units) TC(Rs) 0 1,000 20 1,200 40 1,300 60 1,380 100 1,600

zmr

-4.1lO

300 3,200 400 4,300 500 5,650 1000 13,650. a) Calculate ATC, AFC and AVC b). Calculate MC c)If a firm can sell as much as it wants at a price of Rs 11, what is its profit-maximising output? d)How much profit is made? e)At output levels shown in the table immediately on either side of the profit-maximising output, what is the level of Profit?

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E.The sup~ly and demand for ice cream cones are described by the following equations: Supply: Q = -30 +38 P Demand: QD=90-2P. Q is the Quantity of ice cream cones per day, and P is the price per cone a)Graph the supply curve and the demand curve. What is the equilibrium price and quantity? b)Calculate consumer surplus, producer surplus and total surplus at equilibrium.

2.(lOX4) ATable focuses on the factors that will shift either the demand curve or the supply curve-Shift right or left, Equilibrium price and output higher or lower Fill in the Blanks, the first one is done for youShift Shift Factor DD or SS Price Output Right Higher Higher Population increases DD Input prices go up "7 ....... Tariffs are removed Average income falls Technology improves Product becomes more popular
B.Answer the following questions making sure that you can explain the work you did to arrive at the
answers. ,

Are the following statements True or False? i)If demand is price elastic, then a 10% increase in price is associated with a reduction in quantity demanded of more than 10 percent. This means that quantity is falling faster than price is rising, and total revenue will fal1.(T/F) ii)If demand displays unitary price elasticity, then a 10 percent increase in price is matched by a 10 percent increase in quantity demanded. This means that Total Revenue will remain unchanged.(T/F) iii)If demand is price-inelastic then a ten percent increase in price is associated with a reduction in quantity demanded of less than 10%. This means that total revenue will actually rise with price.(T/F) C. True or False with reasonsi)Average costs are minimized when marginal costs are at their lowest point. ii)Because fixed costs never change, average fixed cost is a constant for each level of output. iii)Average cost is rising whenever marginal cost is rising. iv)The opportunity cost of splilling oil in the Atlantic Ocean is zero because no one pays to sailor swim there. D. i)Ram says,":In the long run since economic profits are zero, firms will have no incentive to produce
.outputin a perfectlycompetitivemarket.Whywouldanyoneproduceand sell a productif they were

to earn no profits?" Do you agree? ii)During the summer of 1994 severe floods in ther south eastern portion of the United States did great damage to the peanut crop. Use diagrams to show the effects of this disaster on the market for peanuts(assuming the market was in long run equilibrium before the flood?)and on the farms that were not damaged by floodwaters. What happened to the equilibrium price and quantity exchanged in the market?What happened to profits for those farms not affected by the flood?What sort of dynamics would you expect in the future? 3.Define (lOX2) i)Trade off ii)Opportunity Cost iii)Marginal iv)Production Possibility Frontier v)Positive and Normative Economics vi)Movement versus Shift in Demand Curve vii)Inferior Good viii)Income Elasticity of Demand
IX)Producer Sllrnllls