Question

Answer the Following Three Questions Please,

56. Suppose that the firm's cost function is given in the following schedule (where Q is the level of output): Output Total Q (units) Cost 0   7 1 25 2 37 3 45 4 50 5 53 6 58 7 66 8 78 9 96 10   124   Determine the (a) marginal cost and (b) average total cost schedules

57. Complete the following table. Total Marginal Average Output Profit Profit Profit 0 ?48             0 ______ 1 ?26   ______ ______ 2 ?8 ______ ______ 3   6 ______ ______ 4 16 ______ ______ 5 22 ______ ______ 6 24 ______ ______ 7 22 ______ ______ 8 16 ______ ______ 9   6 ______ ______ 10   ?8 ______ ______

58. The Future Flight Corporation manufactures a variety of Frisbees selling for $2.98 each. Sales have averaged 10,000 units per month during the last year. Recently Future Flight's closest competitor, Soaring Free Company, cut its prices on similar Frisbees from $3.49 to $2.59. Future Flight noticed that its sales declined to 8,000 units per month after the price cut.

(a)	What is the arc cross elasticity of demand between Future Flight's and Soaring Free's Frisbees?
(b)	If Future Flight knows the arc price elasticity of demand for its Frisbees is ?2.2, what price would they have to charge in order to obtain the same level of sales as before Soaring Free's price cut?

59. The British Automobile Company is introducing a brand new model called the "London Special." Using the latest forecasting techniques, BAC economists have developed the following demand function for the "London Special":

          Q_D = 1,200,000 ? 40P

What is the point price elasticity of demand at prices of (a) $8,000 and (b) $10,000?

Answer 1

Question 56. Average cost is total cost divided by output. Marginal cost = difference in TC/difference in Q

Output	Total cost	Marginal cost	Average cost
0	7
1	25	18.0	25.0
2	37	12.0	18.5
3	45	8.0	15.0
4	50	5.0	12.5
5	53	3.0	10.6
6	58	5.0	9.7
7	66	8.0	9.4
8	78	12.0	9.8
9	96	18.0	10.7
10	124	28.0	12.4

Question 57

Use the same rule for marginal and average cost to find the table below

Output	Profit	marginal profit	Average profit
0	-48
1	-26	22	-26.0
2	-8	18	-4.0
3	6	14	2.0
4	16	10	4.0
5	22	6	4.4
6	24	2	4.0
7	22	-2	3.1
8	16	-6	2.0
9	6	-10	0.7
10	-8	-14	-0.8

Question 58

Arc cross elasticity of demand between Future Flight's and Soaring Free's Frisbees is givenby

= % change in sales / % change in price of Soaring Free Company's frisbees

= (8000 - 10000)*100/10000 divided by (2.59 - 3.49)*100/3.49 = 0.775

Now own price elasticity is -2.2. Then the required % fall in the price is

-2.2 = (10000 - 8000)*100/8000 divided by % change in own price

This gives % change in own price = 25%/-2.2 = -11.36%

The price to be charged in order to obtain the same level of sales as before Soaring Free's price cut should fall by 11.36% from 2.98 to 2.98*(1 - 11.36%) = 2.64.

Question 59

At P = 8000, QD = 1,200,000 - 40*8000 = 880,000 units. Point price elasticity = price coefficient x price /quantity

= -40*8000/880,000 = -0.3636

At P = 10000, QD = 1,200,000 - 40*10000 = 800,000 units. Point price elasticity = price coefficient x price /quantity

= -40*10000/800,000 = -0.5