How does the shape of the producer's supply function reflect price elasticity ? Does cost analysis come into play ? What about time ?? Short Run versus Long Run ??
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The producer’s supply curve showing the price elasticity in the long and short run can be understood considering any market scenario where the demand and the supply can’t change with the same rate as the price changes in the short run. But when it comes to the long run, it does which makes the demand supply to be elastic in the long run & inelastic in the short run relatively.
It is not easy to make changes in the supply when it comes to the situation of the short run as producers need time to set up for more production for the demand, which is actually possible in the long term.
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- At what Price should All Firms Produce at? What does Price Elasticity of Demand Measure?(Supply) Why is a firm willing and able to increase thequantity supplied as the product price increases?The total income received by a producer will fall if:a. Income grows and the good is normalb. Price grows and demand is elasticc. Price grows and demand is inelastic.d. Income falls and the good is inferiorNote: you are asked to argue which alternative is the correct one; and further argue why the other alternatives are false or uncertain.
- If the price elasticity of demand for used carspriced between $3,000 and $5,000 is 2 1.2 (usingthe mid-point method), what will be the percentchange in quantity demanded when the price of aused car falls from $5,000 to $3,000?You are the marketing manager of a farm. How will you transform itsprice elastic products, such as carrots and potatoes, into price inelasticproducts in order to gain more profit margins?3.1 BAD Enterprises is considering increasing the price of its harmonicas,currently $20, by 25 per cent. BAD’s current revenue is $12,000 a month,and the PED for its harmonicas is estimated to be 1.8.a. Calculate the effect of the price change on BAD’s revenue.b. BAD now considers increasing its advertising budget to restore its salesrevenue to its previous level. BAD is currently spending $1,500 a monthon advertising and estimates its AED to be 1.5. What will its new budgethave to be?c. What can you say about what will happen to profit in both (a) and (b)compared with the original level of profit? 3.5 MK Corp estimates that its demand function is as follows:Q ¼ 400 12:5P þ 25A þ 14Y þ 10P where Q is the quantity demanded per month, P is the product’s price(in $), A is the firm’s advertising expenditure (in $’000 per month), Y is percapita disposable income (in $’000), and P * is the price of AJ Corp.a. During the next five years, per capita disposable income is expected toincrease…
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