Business economics

Question 1 (20%)
Consider the market for the confectionery “Mars Bars”. Analyse the following situations and clearly state the affect on both the equilibrium price and equilibrium quantity. Examine each situation separately. Use a diagram for each a)”Snickers” a substitute drops the price by 20% b)average incomes in Australia increase by 20% c)cost saving robot technology introduced into confectionery industry d)”Mars Bars” drop their price by 15%

Question 2 (20%)
Suppose the price elasticity of demand for a particular brand of designer labels is elastic. If the brand owners wish to raise revenue from sales of these goods should they raise the prices of their goods or lower them? Layton et al 2012 p 127 question 1
.
Question 3 (30%)
Use the following demand schedule for a monopolist to calculate total revenue (TR), marginal revenue (MR) and Price Elasticity of Demand (PED). For each price, indicate whether demand is elastic, unit elastic or inelastic. Using the same data, graph the demand curve and the total revenue curve, the marginal revenue curve. Identify the elastic, unit elastic and inelastic segments along the demand curve. (Neat hand drawn diagrams are acceptable).
(Source: Layton et al 2012 p.206 question 6)

Price
($)
Quantity demanded
Total Revenue
Marginal Revenue
Price Elasticity of Demand
5.00
0

4.50
1

4.00
2

3.50
3

3.00
4

2.50
5

2.00
6

1.50
7

1.00
8

0.50
9

0.00
10

Question 4 (20%)
Examine the following table:

Price ($) Quantity demanded Quantity supplied

50 50 80

40 55 75

30 60 70

20 65 65

10 70 60

a) In the above market what is the initial market equilibrium?

b) If the government sets a price floor at $50 what will be the outcome in this market?

c) Why would the government decide to set a price floor?

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