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M I M E
3 1 0
E N G I N E E R I N G
E C O N O M Y
TUTORIAL PROBLEMS
F A L L
2 0 0 8
Department of Mining and Materials Engineering
McGill University
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F O R E W O R D
This document contain a series of short problems that will be solved during the tutorial periods.
Their purpose is to give you assisted practice in solving engineering economy problems.
These
are supplied without solutions, but with numerical answers (in italics), to maximise the benefits
that you will gain from participating in the group solution process.
Detailed solutions to these
problems are available on the course WebCT site. If you are not in the habit of attending the tu
torial periods, make sure that you fully understand these solutions, because many of the problems
are suitable for inclusion in the examinations.
Prof. Bilodeau
1
CHAPTER 1.
INTRODUCTION
1.
Consider the following demand schedule:
Point
Price
($/unit)
Quantity demanded
(units/period)
A
7
450
B
6
750
C
5
1250
D
4
2000
E
3
3250
F
2
4750
G
1
8000
Plot the demand curve and approximate the point elasticity at various points using the graphical
method.
Compare these results with the arc elasticities determined between adjacent points.
[Point elasticities of
≈
2.52 at C,
2.05 at D, and
1.28 at E, versus arc elasticities of 2.08 on
arc CD, 1.67 on arc DE and 1.78 on arc CE]
2.
Consider the following demand function:
Q = C / P
x
in which C and x are a constants.
How does the elasticity vary along this demand function?
[The point elasticity is constant and equal to x]
Note
:
Q = C • P
x
is a supply function with similar characteristics.
3.
Consider the following linear supply functions:
Curve intersecting price axis above origin:
Q = [5 P / 6]  2.5
Curve passing through origin:
Q = 6 P / 9
Curve intersecting price axis below origin:
Q = [7 P / 11] + 14 / 11
How does the elasticity vary along these supply functions?
[Curve above origin:
E>1, tending
to unity as P increases; curve below origin:
E<1, tending to unity as P increases; curve through
origin:
constant unitary elasticity]
4.
The introduction of new technology caused a shift in the supply curve of a particular com
modity at follows:
P
r
i
c
e
(
$
/
u
n
i
t
)
2468
1
0
1
2
Demand ('000 units/year)
125
95
70
50
35
25
Supply ('000 units/year)
Current technology
20
40
60
80
100
120
New technology
40
60
80
100
120
140
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Assuming perfect competition,
i)
Determine graphically the changes in price and quantity sold resulting from the introduction
of the new technology.
[Price decreases by $0.90 and quantity increases by 11 000 units]
ii) Determine the change in total consumer expenditure resulting from the introduction of the
new technology.
What does this change signify in terms of the elasticity of demand between
the previous and new equilibrium points?
[Total consumer expenditure increases by $3100,
indicating a 'slightly' elastic demand between the two equilibrium points]
5.
The table below contains selected information from a production schedule.
Fill in the miss
ing elements.
[Total Product:
0, 40, 100, 180, 240, 280, 300, 280]
Input Rate
(‘000 units/period)
Total Product
(‘000 units /period)
Average
Product
(units)
Incremental
Product
(units)
0
1
40
2
100
80
3
4
60
5
280
6
300
7
6.
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This note was uploaded on 10/15/2011 for the course MIME 310 taught by Professor Bilido during the Fall '08 term at McGill.
 Fall '08
 Bilido

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