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Homework #2 BADM 631 EMS11 Due: 8am May 20, 2010 Name: General Instructions Please enter your answers directly into this document and return via...

Please check the excel file. Thanks.
Homework #2 BADM 631 EMS11 Due: 8am May 20, 2010 Name: General Instructions Please enter your answers directly into this document and return via email (to [email protected] ) by 8am May 20, 2010. Please start the subject line of your email with: Homework 2 Doing so will generate an automatic return receipt from my email system. Show your work and explain your answers fully in your own words. Question 1-- (25 points) The demand for a given product is: , where Pz=$400. a. What is the own price elasticity of demand when Px=$154, other things constant? Is demand elastic or inelastic at this price? What would happen to firm revenue if it decided to charge a price below $154? b. What is the own price elasticity of demand when Px=$354, other things constant? Is demand elastic or inelastic at this price? What would happen to firm revenue if it decided to charge a price above $354? c. What is the cross-price elasticity of demand between good X and good Z when Px=$154, other things constant? Are goods X and Z substitutes or complements? Question 2-- (25 points) Suppose the own price elasticity of demand for good X is -2, its income elasticity is +3, its advertising elasticity is +4, and the cross-price elasticity of demand between it and good Y is -6. Determine how much the consumption of this good will change if: a. The price of good x increases by 5 percent. b. The price of good Y increases by 10 percent. c. Advertising decreases by 2 percent. d. Income falls by 3 percent.
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Question 3-- (25 points) A firm’s fixed costs for 0 units of output and its average total cost of producing different output levels are summarized in the table below. Complete the table to find the fixed cost, variable cost, total cost, average fixed cost, average variable cost, and marginal cost at all relevant levels of output. Question 4-- (25 points) The A-1 Corporation supplies airplane manufacturers with preformed sheet metal panels that are used on the exterior of aircraft. Manufacturing these panels requires only five sheet metal-forming machines, which cost $300 each, and workers. These workers can be hired on an as-needed basis in the labor market at $7,000 each. Given the simplicity of the manufacturing process, the preformed sheet metal panel market is highly competitive. Therefore, the market price for one of A-1’s panels is $50. Based on the production data in the following table, how many workers should A-1 hire to maximize profits?
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539989_FIN.docx

Solutions
Solution 1:
a) We know that,
Pz=$400 and Px=$154
Own price elasticity of demand is given by: (dQ / dPx)*(Px/Q)
When we differentiate Q with respect to Px, we get dQ / dPx = -2
Qx=1000 –...

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