EP333.M1

PART I

1. Derive an average profit and a marginal profit curve diagrammatically from a total profit curve (the “full version”). What are “the three critical points” in deriving these curves and what do they signify?

2. Explain how the elasticites are related to changes in total revenue. Show the six cases of changes in price leading to changes in quantitative and total revenue.

3. Derive average and marginal functions from total function TR = a+bQ+cQ²+dQ³.

4. The following functions are given: AC=20+6Q, TR=24+140Q+3Q²

a. Find the profit function.

b. Find the profit maximizing quantity. (Q=20)

5. (Continuous) Answer following questions on the basis of above information and

calculations.

a. Find the average cost at that quantity. (AC=140)

a. Find the total profit. (P=1224)

6. How is the definition of substitutes and complements related to the sign of cross elasticity? Use example of a pair of commodities in each case.

7. Calculate the price elasticity around the quantity of 1200 and the price of $800 for

the following demand function:

Qx =10 - 6Px +12Py - 4Pz + 10A. (η=-4)

8. In reference to Q6, find the advertising elasticity around the quantity of 1000 and

advertising expenditure of $500. (η=5)

9. Estimate a and b of = a + bX based on the following data and form a regression line:

Y 3 4 6 8 9

X 2 3 5 4 6 (a=0.4, b=1.4)

10. Calculate R² for the above data. What does R² measure? What are the lower and upper limits of R²? (R²=0.75)