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  • 558 PPT Past Final PPR Review Feb 2023

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    eimanhzq5
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    This document provides calculations and analysis related to cost, demand, and pricing strategies. It includes: 1) Calculations of implicit and explicit costs for a farming project totaling $42,250 and $65,760 respectively. 2) Analysis of price elasticity of demand for a buyer, calculated at -0.26. 3) Examination of average and marginal costs for a firm, finding minimum average cost at an output of 5 units. 4) Comparison of a firm's pricing and revenues under single pricing versus price discrimination strategies, concluding price discrimination allows charging a higher price in less elastic markets.

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    558 PPT PAST FINAL PPR REVIEW FEB 2023 (1)

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    This document provides calculations and analysis related to cost, demand, and pricing strategies. It includes: 1) Calculations of implicit and explicit costs for a farming project totaling $42,250 and $65,760 respectively. 2) Analysis of price elasticity of demand for a buyer, calculated at -0.26. 3) Examination of average and marginal costs for a firm, finding minimum average cost at an output of 5 units. 4) Comparison of a firm's pricing and revenues under single pricing versus price discrimination strategies, concluding price discrimination allows charging a higher price in less elastic markets.

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    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
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    3 views13 pages

    558 PPT Past Final PPR Review Feb 2023

    Uploaded by

    eimanhzq5
    This document provides calculations and analysis related to cost, demand, and pricing strategies. It includes: 1) Calculations of implicit and explicit costs for a farming project totaling $42,250 and $65,760 respectively. 2) Analysis of price elasticity of demand for a buyer, calculated at -0.26. 3) Examination of average and marginal costs for a firm, finding minimum average cost at an output of 5 units. 4) Comparison of a firm's pricing and revenues under single pricing versus price discrimination strategies, concluding price discrimination allows charging a higher price in less elastic markets.

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    © All Rights Reserved
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    of 13

    120 minutes

    50 marks
    QUESTIONS
    120 minutes / 50 marks x 8 marks = 19 minutes for this question
    120 minutes / 50 marks x 15 marks = 36 minutes for this question
    120 minutes / 50 marks x 15 marks = 36 minutes for this question
    120 minutes / 50 marks x 12 marks = 29 minutes for this question
    ANSWERS
    Implicit cost
    = (forgone earnings 6000*6 mos)
    + (land rental income forgone 12000 / 2)
    + (dividend income forgone [5%*10000]/2 )
    = 36000 + 6000 + 250
    = 42250

    Implicit cost = 42250

    Explicit cost
    = (wages 5000*6 mos) + (fertilizer & pesticides 4000*6) + (utilities 1800*6). + (interest payment 40*24 weeks)
    = 30000 + 24000 + 10800 + 960
    = 65760

    Explicit cost = 65760


    PED = dQ/dP* P/Q

    For buyer 1: Q1 = 600 – 2P1


    At Pe = 75 and Qe = 575

    PED buyer 1 = -2 (75/575)


    PED buyer 1 = -0.26

    Rate of change in Qd buyer 1:

    PED = %△Qd / %△P


    %△Qd = PED (%△P)
    Qdmkt = Q1 + Q2 Qsmkt = 200 + 5P
    When P change 3%,
    P1 = 300 – 0.5Q1 P2 = 100 – 0.2Q2 Qdmkt = Qsmkt %△Qd = -0.26 (3)
    0.5Q1 = 300 – P1 0.2Q2 = 100 – P2 200 + 5P = 1100 – 7P %△Qd = - 0.78
    Q1 = 600 – 2P1 Q2 = 500 – 5P2 12P = 900
    Pe = 75 Thus, Qty purchased by buyer 1
    Qdmkt = 600 – 2P + 500 – 5P falls by 0.78 percent when price
    Qdmkt = 1100 – 7P Qe = 200 + 5(75) changes by 3%
    Qe = 575
    Firm is in long run as there is no fixed cost
    shown in the TC equation. TFC is represented
    by a constant in the TC function.

    TVC = 1.2Q3 – 18Q2 + 120Q AVC when Q = 5 is:


    AVC = TVC / Q AVC = 3.6Q2 – 36Q + 120
    AVC = 3.6Q2 – 36Q + 120 = 90 + 180 + 120
    AVC min = 390
    To minimize AVC, let dAVC/dQ = 0
    dAVC/dQ = 7.2Q – 36 = 0
    7.2Q = 36
    Q min AVC = 5
    MC = 5

    With price discrimination:

    Qa = 150 – 10Pa Qb = 125 – 12.5Pb


    10Pa = 150 – Qa 12.5Pb = 125 – Qb
    Pa = 15 – 0.1Qa Pb = 10 – 0.08Qb

    MRa = 15 – 0.2Qa MRb = 10 – 0.16Qb

    MRa = MC MRb = MC
    15 – 0.2Qa = 5 10 – 0.16Qb = 5
    0.2Qa = 10 0.16Qb = 5
    Qa = 50 Qb = 31.25

    Pa = 10 Pb = 7.5

    PED = dQ/dP*P/Q PED = dQ/dP*P/Q


    Qa = 150 – 10Pa Qb = 125 – 12.5Pb
    PEDa = -10 (10/50) PEDb = -12.5 (10/50)
    PEDa = -2 PEDa = -2.5
    With single pricing:

    Q mkt = Qa + Qb
    Q mkt = 150 – 10Pa + 125 – 12.5Pb
    Q mkt = 275 – 22.5P
    22.5P = 275 - Q
    P = 12.22 – 0.044Q

    MR = 12.22 – 0.089Q

    With price discrimination: MR = MC


    12.22 – 0.089Q = 5
    In mkt A, PEDa = -2 In mkt b, PEDb = -2.5 0.089Q = 7.22
    Mkt A is less elastic Mkt B is more elastic Q max profit = 81.12

    TRa = Pa*Qa TRb = Pb*Qb


    P = 12.22 – 0.044(81.12)
    TRb = 10 (50) TRb = 31.25 (7.5)
    P max profit = 8.65
    TRb = 500 TRb = 234.38

    Total revenue A > Total revenue B


    It shows that with less elastic demand, firm can
    charge higher price.

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