## Teco401 Economics Principles

Teco401 Economics Principles

Total Marks: 15 marks

Question 1 (4 marks) The table below shows the number of croissants bought in Victoria each day at a variety of prices

Price of Croissants ($)

Number of Croissants (thousands) purchased per day

6

0

5

3

4

6

3

9

2

12

1

15

0

18

a) Graph the daily demand curve for croissants in Victoria.

b) Calculate the price elasticity of demand at the point on the demand curve at which the price of croissants is $3.

c) If all bakeries increased the price of croissants from $3 to $4, what would happen to total revenues?

d) Calculate the price elasticity of demand at a point on the demand curve where the price of croissants is $2.

Question 2 (5 marks)

Suppose the weekly demand for a certain good, in thousands of units, is given by the equation P = 8 – Q and the weekly supply of the good is given by the equation P = 2 +Q, where P is the price in dollars.

a) Calculate the total weekly economic surplus generated at the market equilibrium.

b) Suppose a per-unit tax of $2, to be collected from sellers, is imposed in this market. Calculate the direct loss in economic surplus experienced by participants in this market as a result of the tax.

c) How much government revenue will this tax generate each week? If the revenue is used to offset other taxes paid by participants in this market, what will be their net reduction in total economic surplus?

Question 3 (6 marks) a) For pizza seller whose marginal, average variable and average total cost curves are shown in following diagram, what is the profit-maximizing level of output and how much profit will this producer earn if the price of pizza is $1.18 per slice?

b) Suppose a cinema is a local monopoly whose demand curve for adult tickets on Saturday night is P=8-3Q, where P is the price of a ticket in dollars and Q is the number of ticket sold in hundreds. The marginal cost for adult is $2.

i) What is the marginal revenue curve in the market?

ii) What price should the cinema charge in the markets if its goal is to maximise profits?