2-Elasticities a) Define price elasticity of demand and income elasticity of demand. Explain how they are used to understand the responsiveness of consumers to changes in price and income, respectively. b) Given the following data, calculate the price elasticity of demand for Product A. ( 2 Price (old): $50 Price (new): $60 Quantity demanded (old): 100 units Quantity demanded (new): 80 units c) Using the calculated price elasticity of demand, explain whether Product A is a normal good or an inferior good, and whether it is elastic or inelastic. Costs of Production The terms on the left are associated with the conditions on the right. Match them by placing the appropriate letter in the space provided. 1.longrunA. (P-ATC)x Q 2. shut-down point B. AFCx Q=0 3. long-run equilibrium for a competitive firm C.MC>MR s 4. reduce output D. P = LRATC = MC ( ] 5. break-even E. fixed plant and equipment %, 6. short run losses F. P MC 8. total profit H. ATC=P 9. increase production |. ATC > P > AVC Perfect Competition a) Explain the key characteristics of a perfectly competitive market. b) A perfectly competitive firm is producing 200 units of a good and selling them for $10 each. Its average total cost is $9. Calculate the firm's total revenue, total cost, and profit. c) Draw a graph showing the short-run equilibrium for a perfectly competitive firm. Label the profit- maximizing level of output and the corresponding price