1. If you make an investment of $150.00 and have a return of $51.00 a year for three
years with an interest rate of 7%, should you make the investment?
2. If your marginal utility at max utility for coke is 5 and the marginal utility for pizza
at that point is x and your marginal utility of pizza and coke depends on the amount
of pizza and coke you consume, what is x if the price of pizza is $3.00 and the price
of coke is $2.00?
3. Now assume that Pizza and Coke have a constant marginal utility that was given by
the previous problemß. If the price of pizza is $3.00 and coke is $2.00 and you have
$100.00. How much pizza and coke should you consume to achieve max utility?
4. Katherine advertises to sell cookies for $4 a dozen. She sells 50 dozen, and decides
that she can charge more. She raises the price to $6 a dozen and sells 40 dozen.
What is the elasticity of demand? Assuming that the elasticity of demand is constant,
how many would she sell if the price were $10 a box?
5. Which of the following products are likely to have elastic demand, and which are
likely to have inelastic demand?
a. Home heating oil
b. Pepsi
c. Chocolate
d. Oil
e. Medicine
f. Persian Rugs
g. Water
6. If you are a producer of airplanes and you know the demand for your product can be
represented by the equation y=1,250,000-2x. How much should you charge for your
airplanes to achieve maximum revenue? How much quantity do you sell at max
revenue?
7. If the own elasticity of a product is -.50, what will a 50% increase or decrease do to
the quantity of the product?
8. If the elasticity of demand for oil is .25 and the elasticity of supply is 2, then who will
pay more if an excise tax of $1.00 is introduced into the market?
9. Assume supply and demand have equal elasticity and the demand equation is y=20x and the supply equation is y=x. If an excise tax of $2.00 is introduced, then what is
the new quantity being sold in the market and how much does the government
make in revenue. What is the deadweight loss?