Question

# John, a small businessman, needs your advice on changing the price of soft drinks he sells...

John, a small businessman, needs your advice on changing the price of soft drinks he sells in his store. His objective is to maximize his profits. If the price elasticity of demand for soft drinks is -2.4, would you recommend a price increase or price decrease.

Jennifer enjoys bowling and miniature golf. The extent of her enjoyment is revealed by the following utility schedule:

 Number of games Of Bowling Total utility From games played Number of games miniature Golf Total utility from games played 1 20 units 1 10 units 2 38 2 18 3 54 3 25 4 64 4 31

a) Compute Jennifer’s marginal utility for each activity.

b) Assume that initially that the price for a bowling game is \$2 and for a miniature golf game is \$1 per game. Given a budget of \$8, how many games of each should Jennifer play to maximize her total enjoyment from playing?

c) How many games of each should Jennifer play if the price of golf game remains \$1 but the price of a game of bowling decreases to \$1 per game?

d) Draw Jennifer's demand curve for bowling games.

3. From the following information on costs of production of the ABC corporation, calculate a) Total Fixed Cost (TFC), Total Variable Cost (TVC), Average Fixed Cost (AFC), Average Variable Cost (AVC), Average Total Cost (ATC).

Quantity Produced        Total Cost

0                         \$ 120
1                            135
2                            149
3                            162
4                            174
5                            188
6                            204
7                            224
8                            247
9                            275

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