Page 1: Written Answer Question 14 (6 points) When the price of a flashlight is $5, the number of flashlights demanded is 600 units. When the price increases to $20 per unit, the quantity demanded falls to 200 units. Moreover, if the price of the cells used to operate these flashlights falls by 200 percent, the demand for flashlights increases from 200 units to 300 units. a) Calculate the price elasticity of demand. b) Calculate the cross-price elasticity of demand. c) When Joe earns $30, he purchases 20 flashlights. When his income increases to $120, his quantity demanded increases to 60 units. Calculate Joe's income elasticity of demand for flashlights. (2+ 2 +2 =6 marks) Paragraph B I UVA EV V + . . .Page 8 of 20 Page 1: Previous Page Next Page Question 8 (1 point) The following figure shows the marginal cost curve and the average total cost curve of a firm operating in a perfectly competitive industry. Price (S) MC ATC abb5 5 10 20 Quantity (units) What price does the firm face in the market? 0 8 06 02 2 4Economics Asses The production of a good creates a negative externality. The following figure shows the market for this Page 1 good. Price MSC SRO $14 $ 10 D Quantity The socially optimal price for this good is while the market price of it is equal to $20: $14 $14; $20 $20; $10 $14; $10Question 16 (5 points) The following figure illustrates the marginal cost (MC) curves of two firms operating in the same industry. The marginal cost of Firm B is higher than the marginal cost of Firm A. Firm B Firm A MC Cost Cost ATC MC 35 35 ATC 25 25 P = 15 P = 15 0 0 50 60 Quantity 0 20 3040 Quantity a) What is the optimal output of each firm if the market price is $15? b) The government decides to shut down Firm B, as it has a higher marginal cost than Firm A. If it does so and asks Firm A to produce the combined output of firms A and B, will production be efficient? Explain your answer. (2 + 3 =5 marks) Paragraph v BIUVA V + v