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1. shows the quantity and price that form a monopolist's demand curve. Table 1 Price Total Marginal Total Cost Marginal Output (P) Revenue Revenue (TC) Cost (TR) (MR) (MC) Total Profit 0 RMO RM10 1 RM130 RM70 N RM109 RM120 3 RM92 RM166 4 RM80 RM210 5 RM66 RM253 6 RM50 RM298 a) Based on Table 1, fill up the columns of Total Revenue (TR), Marginal Revenue (MR), Marginal Cost (MC), and Total Profit. (Prepare your answers in the form of a table). (14) b) What is the value of fixed cost for this firm? (2) c) Determine the level of output that maximises the monopolist's total profit. (4)
2.a) Define Price–Consumption Curve (PCC) and Income-Consumption Curve (ICC). (4)
b) llustrate the curves that can be derived from PCC and ICC. Explain. (10)
3.Tea Forté, Inc. sells tea and tea mugs on Amazon.com's site. In December 2017, when Tea Forté cut the price of its loose-leaf tea samplers by 35 percent, it sold 6.5 times as many samplers as before the price cut. Source: Laura Stevens, "Merchants Ride Amazon's Deals," Wall Street Journal, December 11, 2017. a. Based just on this information, the price elasticity of demand for Tea Forté's tea samplers is place.) - (Enter your response as a negative number rounded to one decimal
1.a) Total revenue = Price * Quantity
Marginal revenue is change in total revenue when output rises while marginal cost is change in total cost when output rises. Profit = Total revenue - Total cost
b) Fixed cost is cost when output level is 0. Thus, fixed cost is 10.
c) Monopolist operate at a point when marginal revenue = marginal cost which occurs when output level is 4. Profit at this output level is 110.
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answer 2 .
Sol: please see link.
Price consumption curve(PCC)
PCC shows the changes in purchase of X by consumer when price of good X changes and other factor including price of good Y ,income and taste remains constant.
It shows price effect. It may be of different types depending on elasticity of demand:
a) upward sloping PCC
when price elasticity of demand is less than 1 i.e demand for good X is inelastic.
b) downward sloping PCC
when price elasticity of demand is more than 1 i.e. demand for good X is elastic.
c) horizontal PCC
when price elasticity of demand is 1 i.e unitary elastic.
Income Consumption Curve (ICC)
It shows income effect on the quantity consumed of the goods.It is obtained by joining the points where slope of indifference curve = slope of budget line i.e consumer's equilibrium point on indifference map.
when income effect of both the goods is positive , ICC will be upward sloping. It happens in case of normal goods.
when income effect of goods is negative ,ICC will be downward sloping.It happens in the case of inferior good.
Curves which can be derived from PCC & ICC
1) Engel curve will be derived from ICC
The curve which shows the relationship between the level of incomes & qty purchased of particular commodities is called Engel curve.
3.
The increase in the sale is a 5.5 times which is a 550%. The price cut is 35%.
price elasticity of demand is the ratio of percentage change in quantity demanded to the percentage change in the price
= 550 / -35
= -15.71
The absolute value of price elasticity of demand is 15.71
