Question 1 (50 pts)Suppose the demand and supply curves for a product are given by;Qd = 500 – 5PQs = 100 + 5Pa) Graph the supply and demand curves in Excel (use the market prices of $50, $65, $90, $105, and $120).b) Find out (numerically) the market equilibrium price and quantity and show this on your graph.c) If the current market price of the product is $50, what is the quantity supplied and quantity demanded? How would you describe this situation and what would you expect to happen in this market?d) Now the demand shifts in (decrease) by 20% due decrease in consumers income and the supply shifts out (decrease in cost) by 30% due to new technology advance (capital investment), show graphically and calculate the effects on equilibrium price and quantity of shifts of supply and demand. Should the firm invest on this new technology?Question 2 (50 pts)a) First, run the regression and get the Excel result for the following data.Observation Quantity (lbs.) Price (cents/lb. Advertising Expenditure ($) 1 50 100 4.40 2 65 92 6.25 3 88 81 7.15 4 100 72 7.50 5 93 70 6.30 6 104 68 7.35 7 78 68 5.60 8 118 65 7.15 9 125 58 7.45 10 114 60 7.00 11 130 55 7.70 12 140 45 8.20b) Using the multiple regression result above, estimate the demand relationship.Q = a – b*P + c*ADVc) Calculate the price elasticity of demand and the advertizing elasticity.d) Based on the advertizing elasticity in c), how much will the total revenue(Price * Quantity) be increased for each $100 increase in advertizing expenditure? Is it worth to increase the advertizing expenditure?Question 3 (50 pts)The following table shows data for the simple production function used in Question 1. Capital costs this firm $25 per unit, and labor cost $20 per worker.K L MP 1015 1028 10310 1049 1057 1064 1073 1081a) From the information in the table, calculate TP, AP, TFC, TVC, TC, AFC, AVC, ATC, and MC.b) Graph AFC, AVC, ATC, and MC on one graph.c) Identify the ranges of labor over which there are Economies of Scale and Diseconomies of Scale.
Demand and supply curves
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