1. TheX-Corporationproducesagood(calledX)thatisanormal good.

Itscompetitor,Y-Corp.,makesasubstitutegoodthatitmarkets under the name Y. GoodY is an inferiorgood.

a.HowwillthedemandforgoodXchangeifconsumerincomes decrease?

b.How will the demand for goodY change if consumer incomesincrease?

c.How will the demand for goodX change if the price of goodY

increases?

d.Is good Y a lower-quality product than good X? Explain.

2. Youare the manager of a midsized company that assembles personal computers. Youpurchase most components such as random access memory (RAM)in a competitive market. Based on your marketing research, consumers earning over $80,000 purchase 1.5 times more RAM than consumers with lowerincomes. One morning, youpick up acopyofTheWallStreetJournal andreadanarticleindicatingthat input components for RAM are expected to rise in price, forcing manufacturers to produce RAM at a higher unit cost. Based on this information,whatcanyouexpecttohappentothepriceyoupayfor randomaccessmemory?Wouldyouranswerchange if,inadditionto thischange inRAMinputprices,thearticleindicatedthatconsumer incomes are expected to fall over the next two yearsas the economy dips into recession?Explain

3. Suppose the total benefit derived from a continuous decision, Q,is

(Q) = 20Q2Q²and the corresponding total cost is

C(Q)= 4 + 2Q²,so that MB(Q)= 204Q and MC(Q)= 4Q.

a.What is total benefit when Q=2? Q=10?

b.What is marginal benefit when Q=2? Q=10?

c.What level of Q maximizes total benefit?

d.What is total cost when Q=2? Q=10?

e.What is marginal cost when Q=2? Q=10?

f.What level of Q minimizes total cost?

g.What level of Q maximizes net benefits?

4 . Youare the manager of an organization in America that distributes blood to hospitals in all 50 states and the District of Columbia. A recent report indicates that nearly 50 Americans contract HIV each yearthrough blood transfusions. Although every pint of blood donated in the United States undergoes a battery of nine different tests, existing screening methods can detect only the antibodies produced bythe body's immune system not foreign agents in the blood. Since it takes weeks oreven months for these antibodies to build up in the blood, newly infected HIV donors can pass along the virus through the blood that has passed existing screeningtests.

Happily, researchers have developed a series of new tests aimed at detecting and removing infections from donated blood before it is used intransfusions. The obvious benefit of these tests is the reduced incidence of infection through blood transfusions. The report indicates that the current price of decontaminated blood is $60 per pint. However, if the new screening methods are adopted, the demand and supply for decontaminated blood will change to Q^d=210 1.5Pand Q^S=2.5P 150. What price do you expect to prevail if the new screening methods are adopted? How many units of blood will beused in the United States? What is the level of consumer and producer surplus? Illustrate your findingsinagraph.

5. Youare the manager of a firm that receives revenues of $20,000 per yearfrom product X and $80,000 per yearfrom product Y. The own-price elasticity of demand for product X is -3 and the cross-price elasticity of demand between products Y and X is -1.6. How much will your firm'stotal revenues (revenues from both products) change if you increase the price of goodX by 2percent?