Question

6) A Norwegian salmon fish farm employs 5 automatic fish feeding machines and 2 fish feeding specialist workers. The machines can each feed 300 fish per hour at a cost of $20 per hour, and the workers can each feed 150 fish per hour at a cost of $10 per hour. The fish farm should:

a) Employ more workers and fewer machines.

b) Utilize more machines and fewer workers.

c) Preserve the existing proportion of machines to workers.

d) One cannot tell.

7) The price of rice increases from $1 to $2. The quantity demanded falls from 100 to 95. Calculate the price elasticity of demand. Please round to two decimal places

Answer 1

Ans.6- (C)

Cost of feeding one fish:

for machines= 300/20 = $15

for workers = 150/10 = $15

Since the cost of feeding one fish is same for both machines and workers so it should preserve the existing proportion of machines to workers.

Ans.7-

Price elasticity of demand = (Q2-Q1)/(P2-P1)*(P1/Q1) =(95-100)/(2-1)*(1/100) = -5/100 = -0.05

Note that I have used simple elasticity formula here. We can also use midpoint formula to calculate elasticity which will give different results.