Managerial Economics

Practice assignment

Q1) A consumer spends all her income on food and clothing. At the current prices of price of
food = Rs. 10 and price of cloth = Rs. 5, she maximizes her utility by purchasing 20 units of food
and 50 units of clothing.(Hint: Take food on x-axis and cloth on y-axis)
i) What is the consumer’s income?
ii) What is the consumer ‘s marginal rate of substitution of food for clothing at the equilibrium

Q2) Ali’s budget line relating good X and good Y has intercept of 50 unit of good X and 20
units of good Y. if the price of good X is 12, what is Ali’s income? What is the price of good Y?
What is then slope of budget line?

Q3) Colgate sells its standard size toothpaste for Rs. 25. Its sales have been on an average 8000
units per month over the last year. Recently, its competitor Sparkle reduced the price of its same
standard size toothpaste from Rs. 35 to Rs. 30. As a result Colgate sales declined by 1500 units
per month.
i) Calculate the cross elasticity between the two products.
ii) What does your estimate indicate about the relationship between the two?

Q4) ) You are given the following marginal utilities of goods X and Y obtained by a consumer.
Given that price of X = Rs. 2.5, price of Y = Rs. 1 and income = Rs. 11, find out the optimal
combination of goods
No. of unit consumed Marginal utilities Marginal utilities
of a commodity of X of Y
1 15 10
2 12.5 9
3 10 8
4 7.5 7
5 5 6
6 2.5 5
7 0.5 4

Q5) Suppose the market demand for playing cards is given by the equation

Q = 600 – 100P

Where Q is the no. of decks of cards demand each year and P is the price in Rupee. For a price
increase from Rs. 2 to Rs. 3 per deck, what is the price elasticity?
Q6) A publishing company plans to publish a book. From the sales data of other publisher of
similar books, it works out the demand function for the book as:

Q = 5000 – 5P
Find out
i) Demand curve
ii) Number of book sold at P = Rs. 25
iii) Price for selling 2500 copies
iv) Price for zero sales
v) Elasticity for fall in price from Rs. 25 to Rs. 20.

Q7) Formulate the demand equations and estimate Qd for P=33 by using the following data:

Price level Quantity Demand

38 200
36 500
34 800
32 900
30 1000
28 1400