Economics – Mid-term Exam

Economics – Mid-term Exam

Question

Below is data on weekly Quantity demanded of pizza in a small town in South Georgia, prices and average household incomes.
Use the data to perform a regression analysis of price and income on quantity demanded. (20 points) /
a.) How well does the regression fit the data.
b.) What is the income elasticity of demand for pizza?

Quantity

Price

Income

1

183

29.25

30.72

2

207

30.1

37.57

3

183

30.54

29.43

4

192

28.67

37.2

5

182

30.23

35.87

6

217

29.76

35.16

7

180

31.77

27.7

8

195

31.01

32.96

9

200

29.21

32.3

10

198

30.79

36.1

11

195

29.75

32.68

12

205

29.98

37.49

13

182

30.06

31.32

14

218

28.94

38.67

15

231

29.76

34.82

16

212

27.94

42.27

17

222

30.75

40.03

18

150

28.96

30.02

19

183

30.96

34.3

20

158

29.03

29.89

21

199

30.83

35.27

22

196

30.6

33.55

23

234

29.98

40.03

24

171

29.27

29.91

25

171

31.42

33.69

26

170

29.24

31.51

27

210

27.61

30.6

28

184

30.64

34.36

29

223

29.97

37.59

30

177

31.87

31.78

31

168

30.06

27.47

32

192

28.83

40.64

33

201

30.91

36.2

34

207

29.84

38.05

35

241

29.94

39.55

36

216

30.67

35.38

37

193

31.03

40.42

38

187

28.45

37.29

39

194

30.02

29.68

40

212

30.85

40.61

41

141

30.46

28.23

42

217

28.85

36.87

43

194

29.34

36.59

44

182

30.1

29.56

45

225

28.88

36.26

46

214

30.2

34.29

47

198

28.56

41.7

48

183

29.51

30.92

49

206

29.86

31.22

50

198

30.83

32.39

Q. Alpha Corporation supplies Boeing Corporation with performed sheet metal panels that are used on the exterior. Manufacturing these panels requires only 4 sheet metal-performing machines which cost $400 and workers. Workers can be hired on as needed basis at $15,000 each. The market price for one of Alpha’s panel is $60.00 because the market is highly competitive. Use the information below to determine how many workers Alpha should hire to maximize its profit.

1. A bond pays $1,000 at the end of each year for 5 years plus an additional $5,000 when the bond matures at the end of 5 years. What is the most you would be willing to pay for this bond if your opportunity cost of capital is 5%?
2. Suppose the own price elasticity of demand for good X is -3, its income elasticity is 2, and the cross price elasticity of demand between good X and Y is -5. Determine how much the consumption of this good will change if:
a) The price of good X increases by 5%
b)The price of good Y increases by 12%

3. An accountant for a car rental company was recently asked to report the firm’s cost of producing various levels of output. The accountant knows that the most recent estimate available of the firm’s cost function is C(Q) = 100 + 10Q + Q2, where costs are measured in thousands of hours rented:
a) What is the average fixed cost of producing 2 units of output?
b) What is the average total cost of producing 2 units of output?
c) What is the marginal cost of producing 2 units of output?

6. Provide an intuitive explanation for why a “buy one, get one free” deal is not the same as a “half price” sale