QUESTION 1

Rocky likes to go to the ballet and to the fights. He has $1040 a year to spend in total on both, and his marginal utility of going to the fights is given by MU_F = 20/Q_F and for going to the ballet, MU_B = 6/Q_B.The admission price of going to the fights is $10, and the admission to the ballet is $30. Based on this information:

1A. Rocky chooses to see _________ number of fights.

1B. Rocky chooses to attend __________ performances of ballet.

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QUESTION 2

MetroTRANSIT carries 6,000 passengers a day along its high speed train line to the airport. A ticket on the line currently costs $4.00.In an effort to raise more revenue, management at MetroTRANSIT is considering raising the fare to $5.00. An economist with MetroTRANSIT estimates the demand elasticity for the train is anywhere in the range of [.60, 1.12].Base on this information, after raising the price, daily ticket revenue(price x number of passengers) will be

2A. As low as ____________ dollars.

2B. Has high as __________ dollars.

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QUESTION 3

When the price of cars is $15,000 each, 10,000 cars are sold every month. After increasing the price to $16,500 each, 11,000 cars are sold every month.At the original price, what is the price elasticity of demand for cars?

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QUESTION 4

Elizabeth runs a knitting shop in West Philly. The following contains data on prices and sales in her shop:

Good Knitting Needles Skeins of Yarn

Price $2.50 $10

Quantity 500 2000

She estimates that own price elasticity for knitting needles is and the own price elasticity of yarn is 2. She also estimates that the cross price elasticity for yarn is

.She is currently making a total of $21,250 from the sale of these two goods.

Since the demand for knitting needles is inelastic, and the price elasticity for yarn is elastic, she is thinking of raise the price of knitting needles from $2.50 to $3.00.

Assuming she makes this change,

4A. She can expect to sell __________ Knitting Needles.

4B. She can expect to sell __________ Skeins of Yarn.

4C. She can expect to make ________ total revenue after raising the price.

Remark: This problem need not use all the information given.