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Assignment Business Economics
Assignment Business Economics
Assignment Business Economics
Assume that a consumer consumes two commodities X and Y and makes five
combinations for the two commodities:
ANSWER :
FORMULA
MRSyx = Δ y /Δ x
FORMULA EXPLAINATION
Marginal rate of substitution refers to the rate at which one commodity can be substituted for
another commodity maintaining the same level of satisfaction. The MRS for the two substitute
goods X and Y may be defined as the quantity of commodity X required to replace one unit of
commodity Y such that the utility derived from either combination remains the same.MRS of X
and Y is denoted as Δ y /Δ x as it continues to diminish as the consumer continues to substitute
X for Y or vice versa. According to the ordinal utility approach, MRSyx decreases which means
that the quantity of a commodity an individual is willing to give up for an additional unit of the
other commodity continues to decrease with each substitution. MRSyx derived from different
combinations of commodities X and Y are given in table below.
MRSyx = Δ y /Δ x
Δ y1/ Δ x1 = --
Δ y2/ Δ x2 = 2/(-5)
= -0.4
Δ y3/ Δ x3 = 5/(-4)
= -1.25
Δ y4/ Δ x4 = 8/(-3)
= -2.6
Δ y5/ Δ x5 = 10/(-2)
= -5
CORRECT ANSWER
1 A 25 3 - - -
2 B 20 5 -5 2 -0.4
3 C 16 10 -4 5 -1.25
4 D 13 18 -3 8 -2.6
5 E 11 28 -2 10 -5
Q2. Elaborate the term Total Revenue and Marginal revenue also calculate TR and MR in
the given table
FORMULA:
1) TR1-0 = 20 - 0 = 20
P4*Q4 = 14*4
= 56
P5*Q5 = 12*5
= 60
Sr.No. Price Output (In Unit) Total revenue (TR) Change in revenue(CR) Change in unit (U)
1 20 1 20 20 1
2 18 2 36 16 1
3 16 3 48 12 1
4 14 4 56 08 1
5 12 5 60 04 1
STEPS FOR COUNTING MARGINAL REVENUE :
CR1/U1 = 20/01
= 20
CR2/U2 = 16/01
=16
CR3/U3 = 12/01
= 12
CR4/U4 = 08/01
= 08
CR5/U5 = 04/01
= 04
CORRECT ANSWER
Price of Air Ticket (Per Ticket) Quantity Demanded (Tickets per month)
1,00,000 5,000
1,20,000 3,500
ANSWER
= 20,000
= 1500
FORMULA :
= 20,000 / 1500
= 13.33
INTERPRETATION :
The elasticity of demand is positive that means if price of tickets will be increase the demand of
the tickets will be decrease.
3.b) Elaborate the term Elasticity of Supply and explain any three factors that determines
elasticity of supply.
ANSWER :
INTRODUCTION:
The elasticity of supply cannot be same under all circumstances. This is because it is
influenced by a number of factors. Some important factors that determine elasticity of supply :
1) Nature of a product :
The product’s nature is an important factor that influences the elasticity of supply.
Products that are perishable in nature inelastic supply as their supply cannot be increased
or decreased in a short span of time. On the other hand, products, such as antiques and
old wines, which cannot be reproduced in the same form, have a constant supply.
2) Production techniques :
Production techniques used by organisation also have great influence on the supply
of their products. If organisations use the latest techniques of production, the supply can
be faster with respect to the change in the price of production.
3) Time period :
It affects the elasticity of supply to a great extent. For instance, in the resort run,
elasticity of supply is low due to various factors, such as obsolete production
techniques. Therefore, changes in price do not affect the supply of products
immediately. If the price remains high for a longer period, the supply of products is
increased.
4) Agriculture products :
The elasticity of supply is measured using two methods namely proportionate method
and point method.
CONCLUSION :
Thus, the elasticity of supply is a measure of the degree of change in the quantity supplied of a
product in response to a change in its price.