(a) (i) Explain the Equi-Marginal Principle of consumer behaviour.

(ii) State and explain three other economic assumptions used to analyse consumer behaviour.

(b) A manufacturer of three different products calculates the price elasticity of demand (PED) for

each product as follows

Product A: -2.8 Product B: -1.0 Product C: -0.5

The manufacturer wishes to maximise its revenues. Explain in respect of each of these

products, what change, if any, the manufacturer should make in the prices currently being

charged to enable it to achieve its aim.

Illustrate your answers with the aid of a demand curve for each product.

(c) You are given the following information about certain products:

Cross Elasticity of Demand between Product X & Product A = -0.8

Cross Elasticity of Demand between Product X & Product B = +3.2

Cross Elasticity of Demand between Product X & Product C = -1.6

Cross Elasticity of Demand between Product X & Product D = +0.5

(i) Which of the products above are substitutes for Product X? Explain your answer.

(ii) Which product is the closer complement to Product X? Explain your answer.

2. (a) (i) Explain the reason for the shape of the demand curve of an individual firm in perfect

competition.

(ii) Outline two advantages of perfect competition.

(b) (i) Explain, with the aid of a labelled diagram, the equilibrium position of a firm in short

run perfect competition.

(ii) With the aid of labelled diagrams, explain the impact which the entry of new firms

would have on the market and on the equilibrium position of the firm.

(c) Contrast the characteristics of perfect competition with monopoly under the following headings:

Barriers to entry;

Profits in the long run;

Economies of scale;

Price discrimination.