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Question 1 (a) (13} Consider the following information for a product A and a related product B in consumption: Quantity of A traded Price of
Question 1 (a) (13} Consider the following information for a product A and a related product B in consumption: Quantity of A traded Price of A Income of Consumers Price of B 1,200 $1.00 $10,000 $1.00 1,800 $0.90 $3,000 $0.80 (i) (ii) Determine the price elasticity of demand for product A, the income elasticity of demand for product A and the cross-price elasticity of demand between product A and product B using the mid-point formula. Based on the elasticities, explain how you classify product A in terms of its price and income elasticities of demand and also the relationship between product A and product B. (12 marks) Given that the price of product A decreases by 5%, consumers' income decreases by 3% and the price of product B increases by 4%, compute the effect on the revenue from product A, assuming each change occurs separately. (6 marks} The table below shows the information on quantity, price and cost of a monopolist. Assume that the xed cost is $20. uanti Price Total Variable Cost 10 $9 $20 20 $3 $60 30 $2 $120 40 $6 $200 50 $5 $300 60 $4 $420 Determine the optimal output of the rm and compute the prot or loss of the rm at the optimal output. At what price will the monopolist exit from the industry? (2 marks)
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