Question

Part II – Give an adequate explanation on the following questions (20%) – 4 marks each

1. Discuss the factors that determine the income elasticity of demand.
2. Explain the conditions for oligopoly market structure to exist.
3. What is increasing returns to scale? and describe at least three causes of increasing returns to scale?
4. What is the relation between productivity and cost? Describe the association using equations for MC & MP, and AP & AC
5. Do monopoly firms get a normal profit or supernormal profit in the short run? Explain how?

Part III – Problem Solving (20%)

1. If a consumer increases her quantity of ice cream consumed by 100% when her income rises by 25%. Calculate her income elasticity of demand for the ice cream and interpret the result. (2marks)
2. If Qs = -20 + 10p, and Qd = 400 - 20p, what is the equilibrium price and quantity? (2 marks)

 

1. Assume you are managing a food processing plant in Ethiopia. The demand function for one of your product is given as Qd=50-2p. (8 marks)
2. A) Find the point price elasticity if price is 15 ETB? Is it elastic or inelastic?
3. b) How do you interpret the elasticity result?
4. c) In order to get more revenue what will be your recommendation. Is it to increase price or decrease price? Why?

d) Describe at least four determinants of the price elasticity demand for the food product?