(A) An agribusiness firm marketing a cereal product Good Morning hires an economist to determine the demand...
Question:
(A)An agribusiness firm marketing a cereal product "Good Morning" hires an economist to determine the demand for its product. After months of hard work, the economist informed the company that the demand for Good Morning (Qx) is given by the following equation:
Qx = 12,000 -5,000Px + 5Y + 500Pc
where Px is the price of Good Morning cereal; Y is per capita income, and Pc is the average price of competing products. The average values of Px, Y, and Pc are RM5, RM10,000, and RM6, respectively.
Using the above information:
- Estimate own-price elasticity, cross-price elasticity, and income elasticity of Good Morning cerela. (6 points)
- Determine what effect a price increase of Good Morning would have on total revenue. Please state whether increase, decrease, no changes in total revenue and why?
- If the government decided to increase the sales tax of the cereal products, based on the estimated elasticity, who bears more the tax (tax incidence) between the producer and consumers?
(B) Based on the information of the demand for mutton as follows:
QDM=50 PM-0.974 PB 0.159 Y0.714
where QDM=demand for mutton
PM=price of mutton
PB=price of beef
Y=income
Own-price elasticity (Eii)=-.974
Cross-price elasticity (Eij)= 0.159
Income elasticity (Eiy)= 0.714
- What is the effect on the demand for mutton if the price of mutton increasse by 3%?
- Is beef a substitute or complementary good, and why? If the price of beef increases by 10%, what is the effect on the consumption of mutton.
- Show graphically the effect on consumer and producer welfare if there is a subsidy in the production of mutton.
(C) You are just being hired by a company which produces maize for feeds. As an agribusiness graduate, your superior asked you estimate a supply function of maize.
- Show the specification of the supply function
- Based on the theory, how a supply function is derived?
(D)
- Why market failure exists?
- Discuss the statement that the only amount of acceptable pollution is no pollution at all