1. Given the demand function Q = 500 − 3P − 2PA + 0.01Y where P = 20, PA = 30 and Y = 5000, find (a) the price elasticity of demand (b) the cross-price elasticity of demand (c) the income elasticity of demand. If income rises by 5%, calculate the corresponding percentage change in demand. Is the good inferior or superior?
1.
Given the
find (a) the
If income rises by 5%, calculate the corresponding percentage change in demand. Is the good inferior or superior?
(d) A monopolistic producer of two goods, G1 and G2, has a total cost function
TC = 5Q1 + 10Q2
where Q1 and Q2 denote the quantities of G1 and G2 respectively. If P1 and P2 denote the corresponding prices then the demand equations are
P1 = 50 − Q1 − Q2
P2 = 100 − Q1 − 4Q2
Find the maximum profit if the firm’s total costs are fixed at Gh100. Estimate the new optimal profit if total costs rise to Gh101.
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