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a) Airbus makes 50 planes a year, which sell for $50 million each. If Airbus raises its price, Boeing will leave its prices unaltered, so Airbus loses market share. It faces an elastic demand curve. However, if Airbus cuts its price below $50 million, Boeing is forced to match the price cut, so quantity demanded increases only to the extent that additional plane orders are placed when planes are cheaper. Each company faces inelastic demand when it cuts the price. Draw the demand curve that Airbus thinks it faces. (7 marks) b) Suppose the wool industry is perfectly competitive. i) Draw 6 diagrams showing the equilibrium positions of a competitive firm in the short run and in the long-run. (24 marks) ii) Assuming that a single firm is enjoying abnormal profits, draw another diagram to show the effects of the development of artificial fibres that reduces the demand for wool on the firm’s equilibrium position.
Explain five features of a good economic model
Consider the total cost function TC= 120y-y^2+0.02y^2. a. What level of y yields minimum cost per unit of y? b. What is the relationship between MC and AVc at the above level of output?
In a certain market, the demand for peach was given as QD = 400 -3P, the first day of marketing in 2020, in August 2020, the demand for peach is now given as QD = 200 -3P. From the statement above tell in one sentence the change in demand; what did you consider as the indicator? Write down any five factors responsible for the change in demand. Support your answers by sketching the equations above on the same graph.
Cups of coffee and donuts are complements. Both have inelastic demand. A hurricane destroys half the coffee bean crop. Use appropriately labeled diagrams to answer the following questions. a. What happens to the price of coffee beans? b. What happens to the price of a cup of coffee? What happens to total expenditure on cups of coffee? c. What happens to the price of donuts? What happens to total expenditure on donuts?
WHAT ARE THE SPECIAL PROPERTIES OF THE COBB-DOUGLAS PRODUCTION FUNCTION, AND HOW MIGHT THE FUNCTION BE USED TO CALCULATE THE SOURCES OF GROWTH?
The Long-run production function is given by; Y = 180 L1.2 K1.8 Where, Y = Output (mt/day), L = Labour (hours/mt) K = Capita (Rs/mt) a) Calculate Marginal Product of Labour (MPL) and Marginal Product of Capital (MPK), if L=12 and K=20 (05 Marks) b) Derive the equation for Isoquent and graphically show it by assuming L= 10, 15, 20 25 and 30. (05 Marks) c) Determine factor intensity and returns to scale of this production function. (05 Marks) d) Prove that the elasticity of labour is 1.2 and elasticity of capital is 1.8 (05 Marks)
You are the manager of a firm that receive revenue of Rs.30,000 per year from product X and Rs. 70,000 per year from product Y. The own price elasticity of demand for product X is -2.5 and the cross price elasticity of demand between product Y and X is 1.1. How much will you firm’s total revenue (revenues from both products) change if you increase the price of good X by 1 present?