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