Problem Set 3\t1. Data for the market for graham crackers is shown below. Calculate the elasticity of demand between the following prices.\tPrice of crackers \ufffd \ufffd\u00a0\u00a0\u00a0\u00a0 Quantity Demanded (per month)\t$3 \ufffd \ufffd 80\t$2.5 \ufffd\u00a0\u00a0 120\t$2 \ufffd \ufffd 160\t$1.5 \ufffd\u00a0\u00a0 200\t$1 \ufffd \ufffd 240\t$1.00 – $1.50: ___________________________________\t$1.50 – $2.00: ___________________________________\t$2.00 – $2.50: ___________________________________\t$2.50 – $3.00: ___________________________________\tIf the price of graham crackers is $2.50 should firms raise or lower their prices if they want to increase revenue? Explain this in terms of elasticity.\t2. Assume the competitive market shown below faces a short run price of $10. Using the graph below, identify the following:\tProfit maximizing output:\u00a0\u00a0\u00a0\u00a0 _______________________\tApproximate mark up over cost _______________________\tIn the long run, the price falls to $7.50. Why does this happen?\tWhat is the new profit maximizing output? _______________________\t3. A local hardware store is trying to decide whether to stay open. They have found that their industry is extremely competitive and profits have shrunk considerably. Knowing that you have taken an economics course the owners have asked for your opinion. Draw a completely labeled graph to help you explain the shutdown decision. You should show two graphs in your answer, one for the market as a whole, and one for this store in particular. Assume that the store is losing money; however, explain why they may want to stay open for a little while longer. (NOTE: Your answer should be a written explanation of your graph.)\t4. What combination of the two goods below allows you to maximize your utility with a budget constraint of $14? Show how you arrived at your conclusion in the space provided below. Place your final answers on the lines at the bottom of this page.\tPRICE = $0.50 per pint\tBottles of glue\u00a0\u00a0 Total Utility (Utils)\t1 \ufffd \ufffd\u00a0\u00a0\u00a0 15\t2 \ufffd \ufffd\u00a0\u00a0\u00a0 23\t3 \ufffd \ufffd\u00a0\u00a0\u00a0 30\t4 \ufffd \ufffd\u00a0\u00a0\u00a0 35\t5 \ufffd \ufffd\u00a0\u00a0\u00a0 38\t6 \ufffd \ufffd\u00a0\u00a0\u00a0 40.5\t\u00a0\tPRICE = $2.00 per box\tBales of hay \ufffd\u00a0\u00a0 Total Utility (Utils)\t1 \ufffd \ufffd\u00a0\u00a0\u00a0 10\t2 \ufffd \ufffd\u00a0\u00a0\u00a0 22\t3 \ufffd \ufffd\u00a0\u00a0\u00a0 36\t4 \ufffd \ufffd\u00a0\u00a0\u00a0 52\t5 \ufffd \ufffd\u00a0\u00a0\u00a0 70\t6 \ufffd \ufffd\u00a0\u00a0\u00a0 90\t\u00a0\tBottles of glue: _________________________\tBales of hay: ____________________________<\/p>\n","protected":false},"excerpt":{"rendered":"
Problem Set 3 1. Data for the market for graham crackers is shown below. Calculate the elasticity of demand between the following prices. Price of crackers \ufffd \ufffd\u00a0\u00a0\u00a0\u00a0 Quantity Demanded (per month) $3 \ufffd \ufffd 80 $2.5 \ufffd\u00a0\u00a0 120 $2 Read More …<\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-210879","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts\/210879","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/comments?post=210879"}],"version-history":[{"count":0,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts\/210879\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/media?parent=210879"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/categories?post=210879"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/tags?post=210879"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}