# Cost Schedules & Elasticity

9. Suppose that the firm's cost function is given in the following schedule (where Q is the level of output).

Output

Q (units) Total Cost

0 7

1 25

2 37

3 45

4 50

5 53

6 58

7 66

8 78

9 96

10 124

Determine the:

(a) Marginal cost schedule

(b) Total cost schedule

11. The British Automobile Company is introducing a brand new model called the "London Special." Using the latest forecasting techniques, BAC economists have developed the following demand function for the "London Special":

(Solve using either point or arc elasticity. Consider solving for demand in the two possible price levels. Is this an elastic or inelastic product: do you have pricing power?)

QD = 1,200,000 - 40P

What is the point price elasticity of demand at prices of:

$8,000

$10,000

12. Given the following demand function:

Q = 2.0 P1.33 Y2.0 A0.50

(What is the Advertising Elasticity of Demand? Does advertising work to increase demand?)

Where

Q = quantity demanded (thousands of units)

P = price ($/unit)

Y = disposable income per capita ($ thousand)

A = advertising expenditures ($ thousand)

Determine the following when P = $2/unit, Y = $8 (i.e., $8000), and A = $25 (i.e., $25,000)

a. Price elasticity of demand

b. The approximate percentage increase in demand if disposable income percentage increases by 3%.

c. The approximate percentage increase in demand if advertising expenditures are increased by 5 percent.

13. Suppose that the firm's Production Data is given in the following schedule (where Q is the level of output).

Workers Output

Q (units)

0 0

1 600

2 1000

3 1290

4 1480

5 1600

6 1680

If P=$50 and 2=$14500, how many workers should the firm hire to maximize profits?

#### Solution Summary

These 3 economics questions cover marginal and total cost schedules, point price and advertising elasticity of demand and profit maximization hiring in an attached 3 page Word document.