Determine the cross elasticity demand for margarine, Macroeconomics

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Question 1:

(a) Distinguish between the short run and long run profits of a competitive firm by using graphical representations.

(b) Compare and contrast between perfect competition and a monopoly.

(c) Analyse the concept of economies of scale and the law of diminishing return.

Question 2:

(a) Describe what is meant by price elasticity, income elasticity and income elasticity of demand.

(b) What are the practical implications of the above concepts for a business?

(c) Consider that the demand of butter increases from 20 to 25 when its price decreases from Rs 100 to Rs 80. Suppose also that the demand for margarine decreases from 30 to 26.

(i) Determine the price elasticity demand of butter.
(ii) Determine the cross elasticity demand for margarine.
(iii) How are the two good related? Justify your answer.


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