The marginal cost of producing a bag

Assignment Help Microeconomics
Reference no: EM13162107

1. You are the Lay's Potato Chip distributor for Denver. You hire a consultant to estimate the demand for your product. Here is the estimated demand curve that he provided:

QL = 100 + 0.2PL + 1.5Pp + 0.4Pd + 2I

Where QL stands for bags of Lay's (in thousands), PL is the price of a bag of Lay's (in cents), Pp is the price of Pringle's Potato Chips (in cents), Pd is the price of Doritos Tortilla Chips (in cents), and I is average income in Denver (in thousands of dollars).

a. Upon examining this estimated demand curve, you promptly fire the consultant and file suit to get your money back. Why was this the correct action?

Your new consultant provided the following demand curve (the variables are defined as above)

QL = 250P L -2.5 P p 2 P d I -0.5

Use this much better estimate of the demand function to answer the following questions.

b. Are Lay's Potato Chips a normal or inferior good?

c. Are Doritos a substitute or complement for Lay's?

d. What is the cross price elasticity between Lay's and Pringle's EL,Pp ?

e. You decide to run a sale and lower the price of Lay's by 5%. By what percent and in what direction does quantity demanded change?

f. The marginal cost of producing a bag of Lay=s is 60 cents. How much should you charge per bag?

2. The demand for Goodyear Radial Tires was estimated to be

Q = 12P - 1.5Pg2Pb I - 4,

where P is the price of Goodyear Radials; Pg is the price of gasoline (a complementary good); Pb is the price of Bridgestone Radial Tires (a substitute good); and I is income (all prices and income are measured in dollars)  There are some problems with this estimated demand function.  Please list two.

3.  The demand for your product has been estimated to be

  Q = 10 - 4P - 1.5Pr1 + 0.6Pr2 + 22I - 2.6A

where Q stands for quantity (in thousands of units), P is the price of your product, Pr1 is the price of related good 1, Pr2 is the price of related good 2 (all prices are in dollars), I is the average income in the area (in thousands of dollars), and A is the amount you spend on advertising (in thousands of dollars).  The averages for the series are 50,000 units (i.e., Q = 50) average price of $10 (i.e., P = 10), and the average income in the area was $30,000 (i.e., I = 30).  Use this information to answer the following questions.

a.  Calculate the elasticity of demand, EQ,p.

b.  Is this demand elastic, inelastic, or unitary elastic?

c.  To increase total revenue, what should you do to the price?

d.  You run a sale, lowering your price by 10%.  By what percent will quantity demanded change, and will it increase or decrease?

The product with demand given above is spring training baseball tickets.  One of the related goods is parking at the baseball stadium.  The other related good is hockey tickets.

e.  Parking is which related good?

f.  Spring training tickets are normal goods.  Using the data from above, are tickets luxuries or necessities.  You must show your work (no credit for guessing).

g.  Are you happy with your advertising agency?  Please explain why or why not.

4. You are the Lykes hot dogs distributor for Timber County.  You hire a consultant to estimate the demand for your product. Here is the estimate that he provided:

 

Q = 250P L -0.5 Pgb 0.2 P b -0.5I 0.5

Where Q stands for packages of Lykes hot dogs (in thousands), PL  is the price of a package of hot dogs (in cents), Pgb  is the price of a pound of ground beef (in cents), Pb is the price of a package of hot dog buns (in cents), and I is average income in Timber County (in thousands of dollars).

Assume that this estimate is as close to correct as possible.  Use it to answer the following questions.

a.  Is the demand for Lykes hot dogs elastic, inelastic or unitary elastic?

b.  Is ground beef  a substitute or complement for hot dogs?

c.  What is the cross price elasticity between Lykes and hot dog buns?

d.  Due to an increase in the price of pork, you need to raise the price of Lykes hot dogs by 15%.  By what percent and in what direction does quantity demanded change?

f.  If the price of ground beef increases by 10%, what happens to the demand for Lykes?

g. Again, assuming that this demand is correct, should your manager be happy with your performance as a brand manager?  Why (or why not)?

5.  You are the regional sales representative of a product.  The regional generalized demand function for the product was estimated to be

  Q = 6 - 2.5P + 3Pr -  0.6M + 0.15T

Where Q stands for quantity demanded (in thousands), P is the price of your product, Pr is the price of a related product (both prices are measured in $), M is the average income (in thousands of $) of the people in your region, and T is the average temperature in your region.  Currently, Pr = 7, M = 20 (i.e., income is 20,000), and T = 60.  The supply curve is Q = 2P - 12.  Use this information to answer the following questions.

a.  Is this good a normal or inferior good?  Explain how you determined your answer.

b.  Is the related good a substitute or compliment?  Explain how you determined your answer.

c.  Assuming the other parameters are fixed at their current value, find the demand curve.

d.  What is the equilibrium price and quantity?

e.  Suppose now that the related good=s price increases to Pr = 8.5.  Find the new equilibrium price and quantity.

6. This problem uses the included spreadsheet.  For parts a and b, assume that laborers are paid $100 per day, trenchers can be rented for $75 per day, the cost of pipe, glue and sprinkler heads run 90¢ per square foot.  The firm can charge $1 per square foot irrigated.

a.  In the short run, the number of  laborers is fixed at 5. How many trenchers should the firm rent?

b. Instead, in the short run the number of trenchers is fixed at 3.  How many laborers    should the firm hire?

For parts c and d, assume the input prices are the same, but now the firm can only charge 92¢ per square foot irrigated. 

c. Calculate the optimal number of trenchers to rent when the number of laborers is     fixed at 6.

d. Calculate the optimal amount of labor to hire when the number of trenchers is fixed   at 2.

7.  You employ fishermen to work on your fishing boat.  Historically, the relationship between number of fish caught and number of fishermen has followed the following production schedule.

# of fishermen        fish caught

0               0

1               40

2               95

3               130

4               160

5               175

6               185

7               190

Fish sell for a net price of $10 each.

a.  What is the marginal product of the third fisherman?

b. With which fisherman does the law of diminishing returns set in?

c.  What is the marginal revenue product of the 3rd fisherman?

d.  Fishermen are paid $140 per trip.  How many should the firm hire?

Download:- Economics.xlsx

Reference no: EM13162107

Questions Cloud

What is the maximum amount of carbon dioxide : What is the maximum amount of carbon dioxide that can be produced by the combustion of 0.450g of C2H5OH?
What mass of glucose can be produced : What mass of glucose can be produced from a photosynthesis reaction 6CO2(g) + 6H2O-> C6H12O6(aq) + 6O2(g) that occurs using 18.4 mol CO2? Answer in units of g.
What voume of na2cro4 solution is needed to precipitate : in a laboratory, 6.82 g of Sr(NO3)2 is dissolved in enough water to form 0.500 L of solution. A0.100 L sample is withdrawn from this stock solution and titrated with 0.0245 M solution of Na2CrO4. What voume of Na2CrO4 solution is needed to precip..
The products expected from the treatment hydrogen peroxide : Draw the products(if any) expected from the treatment of each of the following compounds with ozone followed by aqueous hydrogen peroxide
The marginal cost of producing a bag : Are Lay's Potato Chips a normal or inferior good and Doritos a substitute or complement for Lay's, the marginal cost of producing a bag of Lay=s is 60 cents. How much should you charge per bag?
State molecular iodine : Molecular iodine, I2(g), dissociates into iodine atoms at 625 K with a first-order rate constant of 0.271 s^-1. If you start with 7.0×10?2 M I2 at this temperature
How many joules of heat are needed : the specific heat of ethylene glycol is 2.42 j/k-g. How many j of heat are needed to raise the temperature of 62.0 g of ethylene glycol from 13.1°c to 40.5°c?
State what is the final temperature of the tank contents : How much heat was transferred from the tank? b) What is the final temperature of the tank contents? c) How much steam condensed, in kg? for a i found the difference in enthalpies but i cant figure out b, c
What is heat of neutralization of 1 mol of hydrochloric acid : 200 mL of 1.00M NaOH is reacted with 200 mL of 1.00 M HCl in a calorimeter. The calorimeter and the solutions were at an initial temperature of 19.5oC before mixing.

Reviews

Write a Review

Microeconomics Questions & Answers

  The free rider problem

Question: Explain why the free rider problem makes it difficult for perfectly competitive markets to provide the Pareto efficient level of a public good.

  Failure of the super committee is good thing for economy

Some commentators have argued that the failure of the “Super committee” is good thing for the economy?  Do you agree?

  Case study analysis about optimum resource allocation

Case study analysis about optimum resource allocation: -  Why might you suspect (even without evidence) that the economy might not be able to produce all the schools and clinics the Ministers want? What constraints are there on an economy's productio..

  Fixed cost and vairiable cost

Questions:  :   Which of the following are likely to be fixed costs and which variable costs for a chocolate factory over the course of a month?  Explain your choice.

  Problem - total cost, average cost, marginal cost

Problem - Total Cost, Average Cost, Marginal Cost: -  Complete the following table of costs for a firm.  (Note: enter the figures in the  MC   column  between  outputs of  0 and 1, 1 and 2, 2 and 3, etc.)

  Oligopoly and demand curve problem

Problem based on Oligopoly and demand curve,  Draw and explain the demand curve facing each firm, and given this demand curve, does this mean that firms in the jeans industry do or do not compete against one another?

  Impact of external costs on resource allocation

Explain the impact of external costs and external benefits on resource allocation;  Why are public goods not produced in sufficient quantities by private markets?  Which of the following are examples of public goods (or services)? Delete the incorrec..

  Shifts in demand and movements along the demand curve

Describe the differences between shifts in demand and movements along the demand curve. What are the main factors which can shift the demand curve? Explain why they cause the demand curve to shift. Use examples and draw graphs to support your discuss..

  Article review question

Article Review Question: Read the following excerpts from the article "Fruit, veg costs surge' by Todd, Dagwell, published in the Herald on January 25th 2011 and answer questions below:

  Long-term growth, international trade & globalization

Long-term Growth, International Trade & Globalization:- This question deals with concepts such as long-term growth, international trade and globalization. Questions related to trade deficit, trade surplus, gains from trade, an international trade sce..

  European monetary union (emu) in crisis

"Does the economic bailout of Spain and Greece spell the beginning of the end for the European Monetary Union (EMU)?"

  Development game “settlers of catan”

Read the rules of the game, the overview and the almanac for the Development Game "Settlers of Catan"

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd