Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

At the beginning of the year 2021, two friends, Barnabas and Francis decided to set up a company that produces a special kind of

 

At the beginning of the year 2021, two friends, Barnabas and Francis decided to set up a company that produces a special kind of fruit juice called BF fruit juice in Kumasi. To promote BF fruit juice, Barnabas and Francis engaged the services of Emma, a friend and an expert in marketing of fruit juice. In order to make informed decisions, the company employed an economist, who estimated the demand function for the firm's product by using information from 30 supermarkets as follows: Q = 160 -1.50P +2.25P, -0.21 +0.15N + 0.04A (3.121) (0.652) (1.044) (0.102) (0.018) (0.017) where Q is the quantity demanded of BF fruit juice in bottles, P, is the per bottle price of BF fruit juice, P, is the per bottle price of Blue Sky, I is the per capita income of the people of Kumasi, N is the number of consumers and A is amount of money the company spends on advertising. [Note: standard errors are in parenthesis (()) In addition, the economist also estimated the supply function for the product as: Q = -25 +2.5P-1.75P +0.25 +0.03R where Q is the quantity supplied of BF fruit juice, P, is the per bottle price of BF fruit juice, P, is the per unit price of labour, S is the number of suppliers and R is the amount of raw materials used (in kg). Now suppose a bottle of BF fruit juice is sold for GH20, two bottles of Blue Sky are sold for GH60, the per capita income of the people of Kumasi is GH800, the company spends GH1,000 on advertising. In addition, there are 500 consumers and 40 suppliers, the per unit price of labour is GH40, and a total of 1000kg of raw materials are used for the production. a. Interpret the coefficients of the BF fruit juice and Blue Sky. b. Determine the quantity of BF fruit juice bought by consumers. c. What would be the firm's pricing policy option? 2 marks 2 marks 2 marks d. Assess the probable impact on your firm if per capita income of the city decreases by 8%. 2 marks 3 marks e. Determine the equilibrium price and quantity for BF fruit juice. f. Suppose the government imposes a tax of GH8 on every BF juice sold, what will be the new equilibrium price and quantity? 2 marks g. Find the deadweight loss. 2 marks

Step by Step Solution

3.47 Rating (154 Votes )

There are 3 Steps involved in it

Step: 1

a Interpretation of coefficients The coefficient of P per bottle price of BF fruit juice indicates the elasticity of demand with respect to the price of BF fruit juice A positive coefficient suggests ... blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Fundamentals of Financial Management

Authors: Eugene F. Brigham, Joel F. Houston

12th edition

978-0324597714, 324597711, 324597703, 978-8131518571, 8131518574, 978-0324597707

More Books

Students also viewed these Economics questions

Question

What are two numbers that are 23 away from 0 ?

Answered: 1 week ago