Question 1

Consider the following two products: 3D television and prescription.

Required :

a. Which product would have a higher price elasticity of demand in absolute value?

b. Explain your answer including identifying the determinant of elasticity

Question 2 ( 20 marks )

Explore the following two products: Coffee sold in a caf or electricity (assume limited excess capacity).

Required :

a. Which product would have a higher price elasticity of supply in absolute value?

b. Explain your answer including identifying the determinant of elasticity. Coffee sold in a caf or electricity (assume limited excess capacity)

Question 3 ( 20 marks)

Explain whether the following events in questions 1 and 2 will affect fixed costs or variable costs (make sure you justify your answer):

a. The federal government applies a licence fee on every 'television network' of RM1,000 pernnum

b. Samsung signs a new contract reducing the price it pays for 'power boards' that are used in its TVs.

Question 4 ( 30 marks)

PARK CORPORATION estimates that its demand function is as follows:

Q = 150 - 5.4P + 0:8 A + 2.8 Y - 1.2P^*

where

Q = quantity demanded per month (in 1000s)

P = price of the product (in RM)

A = firm's advertising expenditure (in RM'000 per month)

Y = per capita disposable income (in RM'000)

P* = price of BAJ Corp (in RM).

a. During the next five years, per capita disposable income is expected to increase by RM2,500. What effect will this have on the firm's sales?

b. If PARK wants to raise its price by enough to offset the effect of the increase in income, by how much must it raise its price?

c. If PARK raises its price by this amount, will it increase or decrease the PED? Explain.

d. What is the relationship between PARK and BAJ? Explain your answer.

e. If next year PARK intends to charge RM15 and spend RM10,000 per month on promotion, while it believes per capita income will be RM12,000 and BJ's price will be RM3, calculate the income elasticity of demand. What does this tell you about the nature of PARK's product?

f. What effect would an increase in advertising of RM1,000 have on profit- ability, if each additional unit costs RM10 to produce?

Question 5

If firms are belong to the household, why should firms exploit household by increasing price ?.

- Are the firms owners trying to discourage the rest of the household from buying their goods and services or

- They are trying to punish the rest of the household ? or

- What does the firms owners really want?