Microeconomics | Questions

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MICROECONOMICSQuestion 1 - (25 marks)Read the following passage carefully and answer questionsThe beverages industries in which Pepsi operate are highly competitive. They compete withmajor international beverage companies in multiple geographic areas. The Coca-Cola Companyis their primary competitor and they compete on the basis of price, quality, product variety,distribution, marketing and promotional activity. If they are unable to compete effectively, theymay lose their market share and this will have an adverse impact on their revenues and profitmargins.1.Describethreefeatures/characteristics of the industry in which Pepsi operate.(3 marks)2.Although Coca-Cola and Pepsi sell very similar products they spend millions of dollars eachyear to market their products to customers. Explainoneadvantage andonedisadvantages ofadvertising on society.(6 marks)3.Compare the beverages industry competitive environment to perfect competition in terms ofeconomic efficiency.(3 marks)4.R&D Company manufactures plastic bottles for the beverage industry. These bottles are thenused as raw materials in the production of different sodas on the market.Use the diagrambelow to answer the following1
MICROECONOMICSa)What is the profit-maximizing level ofoutputfor this firm?(2 marks)b)What is the profit-maximizingpricefor this firm?(2 marks)c)Calculate the firm’sprofitwhen it produces at the profit maximizing level of output.(3 marks)d)Is this firm in the short run or long run? Explain(3 marks)e)If the firm were operating in a perfectly competitive industry what will be its profitmaximizingprice and outputlevel.(3 marks)Pepsi Company operates in a highly competitive market and relies on continued demand for theirproducts. To generate revenues and profits, they must sell products that appeal to theircustomers. Any significant changes in consumer preferences or any inability on their part toanticipate or react to such changes could result in reduced demand for our products and erosionof our competitive and financial position.1.For each of the following draw well labelled graphs that illustrates the likely effect on theMARKET for Pepsi. Indicate in each case the impact on equilibrium quantity (Q) andequilibrium price (P) forPEPSI.a)Consumer preferences shift away from the product as various Medical Associationswarns that drinking Pepsi may lead to obesity(5 marks)b)Unexpected increases in raw materials and energy costs.(5 marks)2.Pepsi willnotbe able toincreasetheir prices to offset these increased costs without sufferingreduced volume, revenue and operating income because the price elasticity of demand for itsproduct isinelastic.a)Do you agree or disagree with this statement?(1 mark)b)Explain your answer to part a above.(2 marks)3.Suppose Sandra has $1600 to spend only on Pepsi and banana chips. Pepsi cost $80 each andbanana chips cost $40 each.a)Write down the algebraic equation for Sandra’s budget constraint.(3 marks)b)Graph the Sandra’s budget2
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