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# Assignments 1

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mb0026
mb0026

Published by: para2233 on Dec 20, 2009

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10/03/2012

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SMUASSIGNMENT
SEMESTER – 1MBO026
MANAGERIALECONOMICS
SUBMITTED BY:MUSHTAQ AHMAD PARAMBAROLL NO.- 520950361

ASSIGNMENTS
Subject code – MB0026Set 1 SUBJECT NAME- MANAGERIAL ECONOMICS
Q1. The demand function of a good is as follows:
1
=100-6P
1
-4P
+2P
3
+0.003Y WHERE P
1
and Q
1
are the price and quantity values of good 1

and P
3
are the prices of good 2 and good 3 and Y is the income of the consumer. Theinitial values are given:
1
=7
=15
3
=4Y=8000
1
=30 You are required to:a)Using the concept of cross elasticity determine the relationship between good 1 and others
b)
Determine the effect on Q
1
due to a 10 % increase in the price of good 2 and good 3.
Ans.
Cross elasticity can be defined as the proportionate change in the quantity demanded of a particular commodity in response to a change in the price of another related commodity.a) Cross elasticity between good 1 and product 2 = (dQ1/dP2)*(P2/Q1)Cross elasticity between good 1 and product 3 = (dQ1/dP3)*(P3/Q1)  Taking the differentiation of the equation:dQ1/dP2 = -4dQ1/dP3 = 2 Putting the values in the elasticity equation: Cross elasticity between good 1 and product 2 = (dQ1/dP2)*(P2/Q1)= (-4) * (P2/Q1)= (-4) * (15/30)= -2 Cross elasticity between good 1 and product 3 = (dQ1/dP3)*(P3/Q)= (2) * (P3/Q1)= (2) * (4/30)= 0.267
b) As per the cross elasticity equation:
E = % Change in demand of product A / % Change in price of product B% Change in demand of product A = E * % Change in price of product B
Putting the values from
% Change in demand of product A due to 10 % increase of good 2 = -2 * 10= -20%% Change in demand of product A due to 10 % increase of good 3 = 0.267 * 10 = 2.67%
Q2. What are the factors that determine the Demand curve?Explain.

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