Table of Contents

QUESTION TWO.....................................................................................................................................2
QUESTION THREE.................................................................................................................................3
QUESTION FOUR....................................................................................................................................5

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QUESTION TWO
PART A

Tea demand fluctuation: 750 - 550 = 200

Change in demand/change in price * original price + new price/ original demand + new demand
= 500 - 400 = 100

Ec for a 250gm bag of coffee.

The median is 200/100 * 900/1300 = 1.38.

• Cross elasticity of demand is the impact of a change in one product's pricing on another's
demand.

• The demand changed by a certain percentage. The midpoint method can be used to locate this.

PART B

A rise in the equilibrium price of beef would cause a proportionately higher rise in the amount of
beef supplied if the price elasticity of the supply of beef is elastic in nature. When beef
production can be increased quite easily, this is feasible. Since it is very simple to increase
production, an increase in the price of beef results in a proportionately higher increase in the
supply of beef.

In these situations, as the price of beef rises, the producers respond by producing more beef in
enormous quantities, significantly boosting the supply of beef.

A rise in the equilibrium price of beef would result in a proportionally lower increase in the
quantity of beef supplied if the price elasticity of the supply of beef is inelastic in nature. This is
feasible given how challenging it is to boost beef output.

A proportionately lesser increase in the amount of beef being supplied results from a rise in price
because it is comparatively difficult to expand the production of cattle. In such situations, as the
price of beef rises, the producers retaliate by slightly boosting production, which results in a
slight increase in the amount of beef supplied. If the supply of beef is perfectly inelastic with

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respect to price, then an increase in the equilibrium price of beef would have no impact on the
supply of beef. When raising the production of beef is utterly impossible due to certain
restrictions, this is doable. The amount of beef being supplied remains unchanged when the price
of beef rises since it is utterly impossible to expand the production of beef. In these situations,
producers do nothing when the price of beef rises because there is no way to boost production,
hence there is no change in the amount of beef supplied.

PART C

Accounting rate return

The accounting rate of return, or "ARR," contrasts the expected returns on an investment with
the required initial investment.

It is often computed as the difference between the average amount of capital spent and the
average annual profit you anticipate throughout the course of an investment project.

Payback period

A straightforward method for judging an investment by how long it would take to recoup it is the
payback period. It is typically used by smaller companies by default and concentrates on cash
flow rather than profit.

Discounted cash flow

The present-day equivalent of a future cashflow is calculated using a discount rate in the case of
discounted cashflow. The internal rate of return (IRR) and net present value (NPV) are two
different types of discounting methodologies used in evaluation (IRR).

Investment risk and sensitivity analysis

Realistic risk assessment is crucial, as is investment risk and sensitivity analysis. In actuality, the
greatest risk associated with many investments is the disruption they may result in.

QUESTION THREE
PART A

i) Qd = 1625 - 50P and Qs = 25 + 30P

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At equilibrium price and quantity demanded are equal to supply.

1625 - 50P= 25 + 30P

1625-25=30P+50P

1600=80P

P=20

Q=25+30P

Q=25+(30)(20)

Q=25+600

Q=625

ii)

Each firm will produce=625/25

=quantity of 25 units

iii)

TC = 5 + 10Q + 0.2Q2 Qd = 1625 - 50P

50P=1625-Q

P=(1625-Q)/50

PROFIT=TR-TC

PROFIT=PQ-(5 + 10Q + 0.2Q2)

PROFIT=Q[(1625-Q)/50]-5-10Q-0.2Q2

PROFIT =(1625Q/50)-Q2/50-5-10Q-0.2Q2

First derivate of profit=(1625/50)-2Q/50-10-0.4Q

0=1625/50-2Q/50-10-0.4Q Multiply throughout by 50

0=1625-2Q-500-20Q

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0=1625-22Q-500

22Q=1125

Q=51.14

Qd = 1625 - 50P

51.14=1625-50P

50P=1625-51.14

50P/50=1573.86/50

PRICE=31.48

PART B

Demand forecasting is a technique for predicting the future demand for the goods and services of
a business. The purpose of supply chain demand forecasting is to ensure that accurate inputs to
the modelling process are available. This is dependent on the design of the supply chain or the
transport system. Qualitative methods are irrational and rely more on human judgement and
experience. Using objective quantitative methodologies, forecasts are created by analysing
historical data, numerical data, and all accessible variables.

QUESTION FOUR
PART A

i)

The P value will fluctuate the most for mealie meal products. The percentage change in quantity
demanded for an inelastic supply curve is lower than the percentage change in the product's
price. Inelastic supply curves are steeper. Because inelastic supply is unresponsive to changes in
demand, even if demand rises significantly, prices will move significantly while supply changes
very little. Supply is less sensitive to variations in quantity needed when it is inelastic. The
amount supplied will grow by a little percentage but the price will climb by a huge percentage
when there is a significant increase in demand. As observed in the aforementioned diagram, the

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demand curve changes from D* to D when the demand for the product doubles. Due to this, the
ensuing change in price (P) is substantial in comparison to the less significant change in quantity
demanded (Q). As a result, it is evident from the foregoing argument and diagrammatic
illustration that when population growth results in a doubling of the demand for mealie meal, the
price will rise more than the quantity, which will change less.

ii)

The Q will change the most for Salaula, the brand of used clothing. The supply curve for an
elastic good is flatter, and for such a curve, the percentage change in the quantity demanded is
greater than the percentage change in the product's price. In other words, if demand increases
significantly, there will be little change in price and a huge change in the quantity delivered. This
is because elastic supply is particularly sensitive to changes in demand. When supply is elastic, it
reacts quickly to shifts in the quantity demanded. The quantity supplied will increase by a big
percentage in response to an increase in demand, although the price will only increase by a minor
proportion. As observed in the aforementioned diagram, the demand curve changes from D* to D
when the demand for the product doubles. Because of this, the resulting change in price (P) is
minimal in comparison to the high change in quantity demanded (Q).

PART B

TR=320Q-2Q2

TC=1800+50Q+3Q2

PROFIT =TR-TC

PROFIT=320Q-2Q2-(1800+50Q+3Q2)

PROFIT=320Q-2Q2-1800-50Q-3Q2

First derivative of Profit function=320-4Q-50-6Q

270=10Q

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Q=27 UNITS

PART C

PX=-QX+11

PY=-2QY+25

TR FUNCTIONS

Product X=PQ

=(-QX+11)QX

Total revenue function x=-QX2+11QX

Total revenue function y=(-2QY+25)QY

=-2QY2+25QY

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