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Real effects on cigarette consumption

Assignment Help Macroeconomics
Reference no: EM132600725

Consider a perfectly competitive market having following Revenue and cost function:

Price (P) = 50Q - 18 + 25/Q

Total cost (TC) = 8Q + 16

Calculate

(a) Equilibrium Quantity (Qe) of the firm.

(b) Total Revenue (TR)

(c) Equilibrium price (Pe)

(d) Total Cost (TC)

(e) Profit (π) and Interpret your result

(f) Marginal Revenue (MR)

Question No 02:

A study of cigarette demand resulted in the following regression equation:

Q = 2. 55- . 29P - 0. 9Y + 0. 8A - 0. 1W

(-2.07) (-1.05) (4.48) (-5.2)

Here, Q denotes annual cigarette consumption; P is the average price of cigarettes, Y is per capita income, A is total spending on cigarette advertising, and W is a dummy variable whose value is 1 for years after 1963 (when the American Cancer Society linked smoking to lung cancer) and 0 for earlier years. The t-statistic for each coefficient is shown in parentheses. The R^2 of the equation is 0.94.

(a) Which of the explanatory variables have real effects on cigarette consumption? Explain.

(b) What does the coefficient of P represent? If cigarette prices increase by 1 percent, how will this affect consumption?

(c) Are cigarette purchases sensitive to income? Explain

Reference no: EM132600725

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