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QUESTION

assume you are selling a product in which at a price of $10, you can sell 90 units. When the price increases to $11, you can only sell 63 units.

1.assume you are selling a product in which at a price of $10, you can sell 90 units.  When

the price increases to $11, you can only sell 63 units. Given this change in price and sales,

answer the following:

A.

What is the price elasticity of demand for your product?

B.

Is demand elastic, unit-elastic or inelastic?

C.

What is the change in revenue for this product from the price increase?

2.Compute and discuss elasticities for the following cases:

A.

When consumer income increases by 4%, the demand for Ramen Noodles decreases by

6%. What is the income elasticity for Ramen Noodles?  Explain what this income

elasticity measure tells you.

B.

When the price of bread increases by 7%, the demand for butter decreases by 9%.

What is the cross price elasticity? How are the two goods related - are they substitutes

or complements?  Explain why.

C.

When the price of pork increases by 8%, the quantity of lamb purchased increases by

5%.  What is the cross price elasticity? How are the two goods related - are they

substitutes or complements?  Explain why.

3.Explain the factors of production and give an example for each one. 

4.an individual leaves a college faculty, where she was earning $50,000 a year, to begin a

new venture.  She invests her savings of $20,000, which were earning 10 percent annually.

She then spends $20,000 renting office equipment, hires two students at $30,000/student a

year, rents office space for $15,000 and has other variable expenses of $50,000.  At the

end of the year, her revenues are $240,000.

A.

What are her accounting profits for the year?

B.

What are her economic profits for the year?

(Be sure and show your work for both questions)

5.you expect to receive a payment of $600 one year from now.  Answer the following

questions and show your calculations:

A.

The discount rate is 6%.  What is the present value of the payment

to be received? 

B.

Suppose that the discount rate rises to 7%.  What is the present

value of the payment to be received?

C.

What will cause the present value of a future payment to decline?

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