COLLEGE OF HUMANITIES AND LEGAL STUDIES SCHOOL OF ECONOMICS DEPARTMENT OF APPLIED ECONOMICS ECO 103: PRINCIPLES OF MICROECONOMICS GROUPS 15 & 16 Assignment 1ST SEMESTER 2022 Submission Date: Saturday 7th May, 2022 10:00am 1. Universal Exports has estimated the following monthly demand equation for its new brand of gourmet French pizza, Andrew’s Appetizer: Qd = 500 -100P + 50I + 20Pr + 30A where Qd = quantity demanded per month; P = price per unit; I = per-capita income (thousands of dollars); Pr = price of another gourmet product, François’s Frog Legs; A = monthly advertising expenditures (thousands of dollars) of Universal Exports. The supply equation for Andrew’s Appetizer is Qs =1,350 + 450P a. What is the relationship between Andrew’s Appetizer and François’s Frog Legs? b. Suppose that I = 200, Pr = 80, and A = 100. What are the equilibrium price and quantity for this product? c. Suppose that per-capita income increases by 55. What are the new equilibrium price and quantity for this product? 2. Kofi & Sons has estimated the following demand function for its world-famous hot sauce, Hot Shito, Q = 62 - 2P + 0.2I + 25A where Q is the quantity demanded per month (’s), P is the price per 6- oz. bottle, I is an index of consumer income, and A is the company’s advertising expenditures per month (GHc). Assume that P = 4, I = 150, and A = GHc4. a. Calculate the number of bottles of Hot Shito demanded. b. Calculate the price elasticity of demand. According to your calculations, is the demand for this product elastic, inelastic, or unit elastic? What, if anything, can you say about the demand for this product? c. Calculate the income elasticity of demand. Is Hot Shito a normal good or an inferior good? Is it a luxury or a necessity? d. Calculate the advertising elasticity of demand. Explain your result. 3. Table 1 shows Jerry’s total utility from burgers and magazines. The prices of a burger is GHc2, the price of a magazine is GHc4, and Jerry has GHc12 a week to spend. a. Calculate Jerry’s marginal utility per GHc from burgers when he buys 4 a week. Calculate Jerry’s marginal utility and marginal utility per GHc from magazines when he buys 1 magazine a week. b. If Jerry buys 4 burgers and 1 magazine a week, does he maximize his total utility? Which good, if any, must he buy more of and less of to maximize total utility? Explain your answer. c. What quantities of burgers and magazines a week, maximize Jerry’s utility? Burgers Magazines Qty per week Total Utility Qty per week Total Utility 0 0 0 0 1 14 1 100 2 24 2 120 3 32 3 134 4 38 4 144