Exercise-1 WITH SOLUTION 1)The following function describes the demand condition for a company that makes caps

featuring names of college and professional teams in a variety of sports. Q=2,000-100p Where Q is cap sales and P is price. Q=A-BP a.How many caps could be sold at $12 each ? ans:HERE P=12, Q=2000-(100*12)=800 b. what should the price be in order for the company to sell 1,000 caps? ANS: here Q=1000, So P=10 c. At what price would cap sales equal zero? Ans: at $20, cap sales,Q=2000-(100*20)=0 2). Consider the following supply and demand curves for a certain product. Qs=25,000P Qd=50,000-10,000P a.Plot the demand and supply curves. ans: curve will be non-linear, because demand is indirectly proportional to supply,in this case. b. what are the equilibrium price and equilibrium quantity for the industry? Determine the answer both algebraically and graphically. Ans: equilibrium price=50000/35000=1.4, -------- quantity=36000 3) The following relations describe the supply and demand for posters. Qd=65,000-10,000P Qs=-35,000+15,000P Where Q is the quantity and P is the price of a poster, in rupees. a. Complete the following table. Price Qs 6.00 55000 5.00 40000 4.00 25000 3.00 10000 2.00 -5000 1.00 -20000 Qd 5000 15000 25000 35000 45000 55000 Surplus or shortage -50000 -25000 0 25000 50000 75000

b. What is the equilibrium price? Ans: price=4.00 4). The following relations describe monthly demand and supply for a computer support service catering to small business. Qd=3,000-10P Qs=-1,000+10P Where Q is the number of businesses that need services and P is the monthly fee in rupees. a) b) c) d) e) At what average monthly fee would demand equal zero? ans: at 300 At what average monthly fee would supply equal zero? Ans: at 100 Plot the supply and demand curves. Ans: inversely proportional What is the equilibrium price/output level? Ans:200/1000=0.2 Suppose demand increases and leads t a new demand curve: a. Qd=3,500-10p

b. What is the effect on supply? What are the new equilibrium P and Q? ans: same , 225 and 1250 f) Suppose new suppliers enter the market due to the increase in demand so the new supply curve is Q=-500+10p. What are the new equilibrium P and Q? ans: 175 and 1250 g) Show these changes on the graph. Ans : Only price will affect 5) The ABC marketing consulting firm found that a particular brand of portable stereo has the following demand curve for a certain region: Q=10,000-200p+0.03Pop+o.6I+0.2A Where Q is the quantity per month, P is price ($), pop is population, I is disposable income per household (S) and A is advertising expenditure($). a) Determine the demand curve for the company in a market in which P=300, pop=1,000,000, I=30,000, and A=15,000. Ans : 10000-(200*300)+(0.03*1000000)+(0.6*30000)+(0.2*15000)=2000 b) Calculate the quantity demanded at prices of Rs.200, Rs.175, Rs.150 and Rs.125. Ans 18000,23000,28000,33000 c) Calculate the price necessary to sell 45,000 units. Ans : 65 6) Joys frozen yogurt shops have enjoyed rapid growth in north eastern states in recent years. From the analysis of Joys various outlets it was found that the demand curve follows this pattern: Q=200-300P+120I+65T-250Ac+400Aj Where Q=number of cups served per week P=Average price paid for each cup I=Percapita income in the given market(thousands) T=Average outdoor temperature Ac=competitions monthly advertising expenditures(thousands) Aj=Joys own monthly advertising expenditures(thousands) One of the outlets has the following conditions: P=1.50, I-10, T=60, Ac=15, Aj=10 a) Estimate the number of cups served per week by this outlet. Also determine the outlets demand curve. Ans : no of cups= 5100 . b) What would be the effect of a $5,000 increase in the competitors advertising expenditure? Illustrate the effect on the outlets demand curve. Ans : 100, curve will decline c) What would Joys advertising expenditure have to be counteract this effect? Ans : should decrease