Answers to Sample Problems

I. elasticity

1. The U-Pay-Us Cable TV Company has increased the price of cable television service in order to increase total revenue from sales this product. What does the manager of this company believe about the price elasticity of demand for cable television ?

inelastic

2. A 10% increase in the price of bowling pins causes a 5% decrease in quantity. What is the elastcity of demand for bowling pins?

E=0.5 (inelastic)

3. If CRS Growers are willing to sell 30 pumpkins at a price of $3, but only 20 pumpkins at a price of $2,
a. what is their elasticity of supply?

E=1

b. Is this elastic, inelastic, or unitary elastic?

supply is unitary elastic

Costs

1. VCI Corporation has the following costs structure
Fixed Costs = 3000
Variable Costs to produce 100 units = 5000

a. Calculations

total cost = 8000

average fixed cost = 30

average variable cost = 50

average total cost = 80

b. If the firm sells its products at $70 will VCI make a profit?

No. Price is less than average total cost, so the firm is operating at a loss.