ECN 2115 TUTORIAL SHEET 2
2022
1. 1
2.
3. Suppose the demand curve for a good is given by Q x = 10 – 2Px + Ps Where Px is the
price of the good, Qx is quantity demanded and Ps is the price of the substitute good. The
price of the substitute good is US$2.00 (a) Suppose Px = US$1.00. What is the price
elasticity of demand? What is the cross price elasticity of demand? (b) Suppose the price
of the good, Px, goes to US$2.00. Now what is the price elasticity of demand? What is
the cross price elasticity of demand?
4. Suppose that the price elasticity of demand for petrol is equal to unity and at K15 per litre
an individual consumes 80 litres of petrol per week. At what level should the price of
petrol be fixed such that the individual demands 60 litres of petrol? 3. Mr Phiri‘s budget
line relating good X and goody has intercepts of 50 units of good X and 20 units of goody.
If the price of good X is K12, What is Mr Phiri’s income? What is the price of good Y?
What is the slope of the budget line?
5. The average monthly salary of households in Lusaka increases from K2000 to K2500. As
a result, quantity demanded of white bread rises from 1000 to 1100 units per day, the
quantity demanded for brown bread decreases from 2000 to 1900 units per day and the
quantity demanded for hungry lion increases from 300 to 500 pieces per day a) Use the
mid-point formula to calculate the income elasticity of demand for white bread, brown
bread and hungry lion respectively
6.
7. The Kumbz Handmade LTD has the following technology function for the classic suits in
town;
� = 5�0.5 �0.5
Where Q is the number of suits tailored per day, L is the number of hours the tailor spend
working and T is the number of hours using the tailoring machine.
i.
Suppose instead that the Kumbz Handmade LTD decides to employ 9 hours of the
tailor and 9 hours of the tailoring machine. How many suits can be tailored?
ii.
Suppose instead the isocost is within K90 and yet the firm can employ a tailor per
hour at K1 and rent the tailoring machine at K2. Find the number of the Suits
produced if the firm was to maximize the on number of suits tailored.
8. Ms. Mwila’s LTD isocost relating to Capital and Labor has intercepts of 8 units of
Capital and 40 units of Labor. If this firm can employ Capital at K5. What would be Ms.
Mwila’s LTD Total Cost? Hence what’s the optimal input combination if the production
function is � �, � = 20�0.75 �0.25