ME-Arithmetic

Problem on Supply
Problem No 1.
Vikram's supply equation for selling handmade mugs is as follows:
Q=5+1.5P
How many mugs will he sell if the price is Rs2 per mug ?
What if the price is Rs4 per mug?
Solution
Simply plug in the price into Vikram's supply equation.At Rs 2 per
mug ,he will ell Q=(5+1.5(2) )=8 mugs
At Rs4 per mug Q=(5+1.5(4) )=11 mugs
Problem No 2
If Vikram's equation is now Q=5+2P at what price will he no longer be
willing to sell mugs?
Solution
To find the price at which he will no longer sell we put Q=0 and ssolve
for P
Q=5+2P
P=5/2=Rs2.50
Problems on Elasticity
Problem No 3
Yesterday, the price of envelopes was Rs3 a box and Smitha was willing
to buy 10 boxes .Today, the price has gone upto Rs 3.75 a box , and
Smitha is willing to buy 8 boxes. Is Smitha's demand for envelopes
elastic or inelastic? What is Smitha's elasticity of demand?
Solution
To find Smitha's elasticity of demand ,we need to divide the percentage
changes in the quantity by the percentage change in Price
% Change in Quantity=(8-10)/10=20%
% change in Price =(3.75-3.00)/3.00=25%
Elasticity =20%/25%= 0.8
So the elasticity is inelastic as it is less than 1
Problem No 4
If Varma's elasticity of demand for samosa is constantly 0.9,and he
buys 4 samosas when the price is Rs1.50 per samoa how many will he
buy when the price is Re1 per Samosa ?
Solution
This ime,, we are using elasticity to find quanity.
Elasticity= Varma's elasticity % change in quantity=(x-4)/4
Therefore elasticity =0.9=(X-4)/4(% change in price)
% change in price=(1-1.50)/1.50=33%
0.9=(X-4)/4/9-33%)
(X-4)/4=0.3
0.3=(X-4)/4=5.2
Since Varma cannot buy fraction of a samosa he will buy 5 samosas
when price is down to Re1 per Samosa
Problem No 5
If the price of a good increases by 8% and the quantity demanded
decreases by 12%,what is the price elasticity of demand ?Is it
elastic/inelastic or unitary elastic?
Solution
-12%/8%=0.12/0.08=1.5
So the elasticity is 1.5.This means it is elastic
Problems on Costing
Problem No 6
A driver wishes to buy Petrol and have his car washed.He finds that the
market price of Petrol is Rs100.08 per litre and car wash is Rs100 when
he buys 19 litres but if he buys 20 litres the car wash is free.The
marginal cost of the twentieth litre is
a)Rs100
b)zero
c)8 paisa
d) Rs100.08
Answer is 8 paisa
Problem No7
In the short run ,if average variable costs equal Rs6 and average total
costs equal Rs10 and output equals 100, then total fixed costs equal
a)Rs16
b) Rs 1600
c)Rs4
d)Rs400
e) Rs0.025
Answer Rs 400
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