6 Marks Question

Question 16 Marks

(i) A consumer buys 18 units of a good at a price of Rs 9 per unit. The price elasticity of demand for the good is (-)1. How many units the consumer will buy at a price of Rs 10 per unit. Calculate.
(ii) Price elasticity of demand of goods is (-) 4. When price of the goods falls, its demand rises by 24 percentage. Calculate percentage change in price

Answer

(i) Given,
Elasticity of Demand $( Ed )=(-) 1$
Old Price $( P )=$ Rs 9; New Price $=10$
Change in Price $( P )= X 1$ Old Quantity $( Q \Delta)=18$ units, New Quantity $= x$
Change in Quantity $(\Delta Q )= X -18$.
Now, we know, $E _{ d }=\frac{P}{Q} \times \frac{\Delta Q}{\Delta P}$
$-1=\frac{9}{18} \times \frac{x-18}{1}$
$-1=\frac{x-18}{2}$, or $-2=x-18$
or $x=18-2=16$ units
$\therefore$ Consumer will buy 16 units at the price of Rs 10 per unit.
(ii) Given, $Ed =(-) 4, \%$ Change in Demand $=24 %$
To find \% change in price.
$E_{d}=\frac{\text { Percentage Change in Demand }}{\text { Percentage Change in Price }}$
or $(-) 4=\frac{24}{\text { Percentage Change in Price }}$
$\therefore$ Percentage Change in Price $=-\frac{24}{4}=-6$
$\therefore$ Percentage Change in Price $=(-) 6$
means price decreases by 6 percent.

View full question & answer→

Question 26 Marks

Mr. Sohan Singh has a small scale unit producing chairs and other furniture. Read the following information and answer the given questions :
1. Wages of daily workers = Rs. 5,000
2. Monthly rent of the building = Rs. 5,000
3. Cost of raw material = Rs. 10,000
4. Insurance cost = Rs. 2,000 In the month of July he sold 20 chairs at Rs. 1,000 each.
i. What is his fixed cost?
ii. What is his variable cost?
iii. Is he producing at breakeven point?
iv. Should he closed down his unit or not?

Answer

i. Fixed Cost $( FC )=$ Monthly rent of the building + Insurance cost=Rs. $5000+2000=$ Rs. 7000
ii. Variable Cost $( FC )=$ Wages of daily workers + Cost of Raw material $=$ Rs. $5000+$ $10,000=$ Rs. 15,000
iii. No, he is not producing at break-even point. Breakeven point refers to the point where;
$\begin{array}{l}
TR=TC \\
TC=FC+VC=\text { Rs. } 7,000+15,000=\text { Rs. } 22,000 \\
TR=\text { Price } \times \text { Quantity } \\
=\text { Rs. } 1000 \times 20=\text { Rs. } 20,000
\end{array}$
As, TC $>$ TR so, he is operating below the break-even point.
iv. To know whether he should close down or not we should know the shutdown point. Shut down point refers to a situation when a firm is able to cover its (VC) variable costs only. As he is recovering his VC so, he should not close down his business.
$\begin{array}{l}
A R=\frac{T R}{Q}=\frac{20,000}{20} \\
=R s .1,000 \\
A V C=\frac{V C}{Q}=\frac{15,000}{20} \\
=\text { Rs. } 750
\end{array}$

View full question & answer→

Economics 6 Marks Question

Take a timed test