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Dear OTA,

Please help with the following questions below:

(1) Suppose that the price of product A falls from $20 to $15. In response, the quantity demanded of A increases from 100 to 120 units. The quantity demanded for product B increases from 200 to 300. Calculate the arc cross elasticity between Product B and Product A. Is B a substitute or complement for A? Explain. Does Product A follow the "law of demand'? Explain.

(2) Suppose that you can sell as much of a product as you want at $100 per unit. You marginal cost is MC = 2Q. Your fixed cost is$50. What is the optimal output level? What is the optimal output, if your fixed cost is $60?

(3) Suppose that the marginal product of labor is: MP = 100 - L, where L is the number of workers hired. You can sell the product in the marketplace for $50 per unit, and the wage rate for labor is $100. How many workers should you hire?

Thanks

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Solution Preview

(1) Suppose that the price of product A falls from $20 to $15. In response, the quantity demanded of A increases from 100 to 120 units. The quantity demanded for product B increases from 200 to 300. Calculate the arc cross elasticity between Product B and Product A. Is B a substitute or complement for A? Explain. Does Product A follow the "law of demand'? Explain.
Cross Elasticity between B and A = Change in the demand for B / Change in the price ...

Solution Summary

The price of products in the marketplace is determined. A complete, neat and step-by-step solution is provided in the attached file.

$2.19