Business Economics

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1. Calculate the following:

Total Fixed Total Variable Total Average Marginal

Quantity
Cost Cost Cost Cost Cost

25 10 18 ? ? ?

26 10 20 ? ? ?

27 10 21 ? ? ?

Analyse the changes in the calculated costs as quantity produced increases. (10 Marks)

2. Assume that a consumer consumes two commodities X and Y and makes five combinations for the
two commodities:

Combination Units of X Units of Y

A 25 3

B 20 5

C 16 10

D 13 18

E 11 28

Calculate Marginal rate of Substitution and explain the answer. (10 Marks)
3. a) Suppose the monthly income of an individual increases from Rs 20,000 to Rs 35,000 which
increases his demand for clothes from 40 units to 50 units. Calculate the income elasticity of demand
and interpret the result. (5 Marks)

b) Quantity demanded for tea has increased from 300 to 450 units with an increase in the price of the
coffee powder from Rs 25 to Rs 30. Calculate the cross elasticity of demand between tea and coffee and
explain the relationship between the goods. (5 Marks)