1. Mr Karan is a wholesaler who sells goods in quantities. One of the strategies used by this firm is to offer discounts who buys beyond certain quantities. Assume the inverse demand equation for each customer is P= 70-0.5Q and the cost of producing 1 extra unit of good is $10.

A) If the firm does not discriminate on prices charged, what would be the profit maximizing price and quantity?

B) How many additional quantities could the customer buy and at what price?

2. Kelera maximizes her satisfaction by consuming Good X and Good Y. Her utility function is U=XY. She works for 45 hours per weeks and earns $5 per hour. Price of Good X is $5 which price of Good Y is $2. After 1 month she noticed due to Covid 19, price of Good X has doubled while price of Good Y and her income remained unchanged.

A) Calculate the substitution effect of increase in price of Good X on consumption of good X.

B) Calculate the income effect of increase in price of Good X on consumption of good X.