Eco402 Assignment No.1 solution Spring 2012
Wednesday, April 25, 2012 Edit This
a) Equilibrium price of MP3 player in Japan.
Equilibrium price:
Qs = Qd
Qs = 1300 + 17 P
Qd = 1900 - 7P
1300 + 17 P = 1900 - 7 P
1317 = 1893 P
P = 1.437
Q = 1300 + 17 (1.437)
= 1300 + 24.429
=1324.42
....................
E D / P = P / Q Qp/P = 1.437 / 1324.42 (-7)
= -6.998
elasticity of price is inelastic
Elasticity of demand when price is 10
Ep = 10 / 1830 * -70 / 1830
= 5.464 * (- 0.03825)
= -2.090
elasticity of price is inelastic
Elasticity of demand when price is 20
Ep = 20 / 1760 * -70 / 1830
= 0.0113 * (-0.03825)
= -4.322
elasticity of price is inelastic
...........................
P = 6000-4Q
TC = 500,000 + Q2
Where Q is quantity of urea, P is price being paid by the farmers and TC is total cost which
is borne by urea industry.
Requirements:
Considering the above scenario, answer the questions stated below:
A. What price would be charged and what quantity would be supplied by the urea industry in order to maximize its profit.
Solution:
P = 6000-4Q
TC = 500,000 + Q2
Setting Price per Bag = Rs.2500
So,
P = 6000 - 4Q
2500 = 6000 - 4Q
4Q = 6000 - 2500
4Q = 3500
TC = 500,000 + Q2
TC = 500,000 + (put Q value here and the Square) 2
i. Price which is denoted by P Is 2500/bag
ii. Quantity which is Q is ....
B. What would be the maximum profit that can be earned by the urea industry?
Solution:
B. Use formula for this
Profit = Total Revenue - Total Cost
C. How much profit urea industry will earn after imposition of the new price by the
Government?
Solution:
C. same Answer as B
D. Being a student of Economics, suggest what production decision urea industry
should take in the short run as a result of imposition of price by the government.
Solution:
D. They have to increase the production and increase the cost of the product as government increases the cost of urea per bag .In the short run the equilibrium market price is determined by the interaction between market demand and market supply. A firm maximize profits when marginal revenue = marginal cost. Some firms may be experiencing sub-normal profits because their average total costs exceed the current market price. Other firms may be making normal profits where total revenue equals total cost
................................
a) Equilibrium price of MP3 player in Japan.
Equilibrium price:
Qs = Qd
Qs = 1300 + 17 P
Qd = 1900 - 7P
1300 + 17 P = 1900 - 7 P
1317 = 1893 P
P = 1.437
Q = 1300 + 17 (1.437)
= 1300 + 24.429
=1324.42
E D / P = P / Q Qp/P = 1.437 / 1324.42 (-7)
= -6.998
elasticity of price is inelastic
Elasticity of demand when price is 10
Ep = 10 / 1830 * -70 / 1830
= 5.464 * (- 0.03825)
= -2.090
elasticity of price is inelastic
Elasticity of demand when price is 20
Ep = 20 / 1760 * -70 / 1830
= 0.0113 * (-0.03825)
= -4.322
elasticity of price is inelastic
Equilibrium price:
Qs = Qd
Qs = 1300 + 17 P
Qd = 1900 - 7P
1300 + 17 P = 1900 - 7 P
1317 = 1893 P
P = 1.437
Q = 1300 + 17 (1.437)
= 1300 + 24.429
=1324.42
....................
E D / P = P / Q Qp/P = 1.437 / 1324.42 (-7)
= -6.998
elasticity of price is inelastic
Elasticity of demand when price is 10
Ep = 10 / 1830 * -70 / 1830
= 5.464 * (- 0.03825)
= -2.090
elasticity of price is inelastic
Elasticity of demand when price is 20
Ep = 20 / 1760 * -70 / 1830
= 0.0113 * (-0.03825)
= -4.322
elasticity of price is inelastic
...........................
P = 6000-4Q
TC = 500,000 + Q2
Where Q is quantity of urea, P is price being paid by the farmers and TC is total cost which
is borne by urea industry.
Requirements:
Considering the above scenario, answer the questions stated below:
A. What price would be charged and what quantity would be supplied by the urea industry in order to maximize its profit.
Solution:
P = 6000-4Q
TC = 500,000 + Q2
Setting Price per Bag = Rs.2500
So,
P = 6000 - 4Q
2500 = 6000 - 4Q
4Q = 6000 - 2500
4Q = 3500
TC = 500,000 + Q2
TC = 500,000 + (put Q value here and the Square) 2
i. Price which is denoted by P Is 2500/bag
ii. Quantity which is Q is ....
B. What would be the maximum profit that can be earned by the urea industry?
Solution:
B. Use formula for this
Profit = Total Revenue - Total Cost
C. How much profit urea industry will earn after imposition of the new price by the
Government?
Solution:
C. same Answer as B
D. Being a student of Economics, suggest what production decision urea industry
should take in the short run as a result of imposition of price by the government.
Solution:
D. They have to increase the production and increase the cost of the product as government increases the cost of urea per bag .In the short run the equilibrium market price is determined by the interaction between market demand and market supply. A firm maximize profits when marginal revenue = marginal cost. Some firms may be experiencing sub-normal profits because their average total costs exceed the current market price. Other firms may be making normal profits where total revenue equals total cost
................................
a) Equilibrium price of MP3 player in Japan.
Equilibrium price:
Qs = Qd
Qs = 1300 + 17 P
Qd = 1900 - 7P
1300 + 17 P = 1900 - 7 P
1317 = 1893 P
P = 1.437
Q = 1300 + 17 (1.437)
= 1300 + 24.429
=1324.42
E D / P = P / Q Qp/P = 1.437 / 1324.42 (-7)
= -6.998
elasticity of price is inelastic
Elasticity of demand when price is 10
Ep = 10 / 1830 * -70 / 1830
= 5.464 * (- 0.03825)
= -2.090
elasticity of price is inelastic
Elasticity of demand when price is 20
Ep = 20 / 1760 * -70 / 1830
= 0.0113 * (-0.03825)
= -4.322
elasticity of price is inelastic
