Question

Part C: Calculation Question [40 marks]
⦁   The schedule below shows the number of packs of bagels bought in Sydney, each day at a variety of prices.

Price of Bagels ($/pack)	Number of packs purchased per day
20	0
16	1
12	2
8	3
4	4
0	5

⦁   Graph the daily demand curve for packs of bagels in Sydney. (5 mark)
⦁   Calculate the price elasticity of demand at a point on the demand curve where the price of bagels is $12 per pack. (8 mark)
⦁   If bagel shops decreased the price of bagels from $12 per pack to $8 per pack, what would happen to total revenues? (7 mark)

⦁   This table gives Billy's total willingness to pay for different levels of consumption of tennis balls during the summer of 2012.

Cans of tennis balls	Total willingness to pay
1	$7.65
2	$13.04
3	$16.5
4	$19.37
5	$20.58

a) What is the marginal benefit to Billy of the second can of tennis ball? (3 mark)
b) If the price of tennis balls is $3 per can, how many cans will Billy wish to purchase in the summer of 2012?
c) If the price of tennis balls is $3, how much consumer surplus does Billy receive from the cans of tennis balls he chooses to buy? (5 mark)

Answer 1

1)

2) PED = ∆Q/∆P * P / Q

             = (1 / 4) * (12 / 2)

             = 1.5

3) At P = $12, TR = $12 * 2 = $24

    At P = $8, TR = $8 * 3 = $24

Thus, TR will remain same.

tennis balls	Total willingness to pay	Marginal willingness to pay	Willingness to pay per can
1	$7.65		7.65
2	$13.04	5.39	6.52
3	$16.5	3.46	5.50
4	$19.37	2.87	4.84
5	$20.58	1.21	4.12

a) Marginal benefit to Billy of the second can of tennis ball = $13.04 - $7.65 = $5.39

b) If the price of tennis balls is $3 per can, Billy will wish to purchase 5 cans of tennis balls. Because willingness to pay per unit is more than $3.

c) Consumer surplus = $20.58 - ($3 * 5) = $5.58