EcON 1010 Quiz: Exploring Elasticity and Perfectly Competitive Markets

This document presents the solutions to an EcON 1010 quiz, focusing on the concepts of elasticity and perfectly competitive markets. The quiz covers various aspects, including calculating point elasticity of demand, understanding the impact of price changes on quantity demanded, and identifying factors that influence consumer behavior in different market scenarios. The solutions delve into the application of these concepts to real-world examples, such as the entertainment industry, book sales, and coffee shops. The quiz also explores cost structures and profit maximization in perfectly competitive markets, with questions on average variable cost, average total cost, and the decision to shut down or continue operations. The analysis extends to the market for showbags and the implications of price changes on revenue. The document provides detailed explanations and calculations to help students grasp the economic principles involved.

EC O N 1 0 1 0 – Q U I Z - Elasticity and Perfectly Competitive Markets
Q U E S TI O N 1
1. The Brisbane Entertainment Centre is a performance venue, which hosts popular musicians from
around the world. It has a maximum seating capacity of 13,500 people. In 2015, an artist priced
their performance at a price of $50 per ticket and the show was completely sold out. The next
year the same performer decided to increase the price to $100 per ticket but this time only 12,000
tickets were sold.
1. The point elasticity of demand at a price of $50 is 0.07% (rounded to two decimal places).
2. A 1% increase in the price of a ticket leads to a 0.11% (rounded to two decimal places) decrease
in quantity demanded.
3. A 1% increase in price leads to a 0.07% (rounded to two decimal places) increase in quantity
demanded.
Which of the above statements are true:
Only 1 is true.
Only 2 is true.
Both 1 and 2 are true.
Both 2 and 3 are true.
All three are true.
Q U E S TI O N 2
1. An author has released several popular fantasy novels, in the past, for a recommended retail price
(RRP) of $19.99. The most recent novel sold 5 million copies worldwide. For a new book, the
RRP is increased to $21.99 in an attempt to increase revenue. The new book sells 4.8 million
copies worldwide.
Which of the following statements are true:
The point price elasticity of demand for the author's novel at a price of $19.99 is 0.3998.
The point price elasticity of demand for the author's novel at a price of $19.99 is 39.98.
The point price elasticity of demand for the author's novel at a price of $19.99 is inelastic.
A 1% decrease in the price of the author’s novel when $21.99 will lead to a 33.98%
decrease in the quantity of novels demanded.

Q U E S TI O N 3
1. There are several coffee shops at UQ. It is known that a consumer is more likely to return to a
coffee shop that they are already familiar with and have purchased a coffee from before. John
has purchased a coffee from Merlo’s but not from Darwin's or the Beltop Cafe.
Select the item from the list provided to make the following statements true.
John's demand for coffee
from Merlo's could be
less __________ than at
Darwin's or the Beltop
Cafe.
With several __________
coffee shops at
UQ,John's demand for
coffee would be more
elastic.
If John considers coffee
to be a necessary
good,compared to Sue
who is an occasional
coffee drinker, then
John's demand for coffee
would be relatively
__________ inelastic.
1. more
2. budget
3. greater
4. necessa
ry
5. increas
e
6. luxury
7. inelasti
c
8. elastic
9. decreas
e
1
0.
time
1
1.
substit
ute
1
2.
deman
d
Q U E S TI O N 4
1. Suppose between 2015 and 2016 there were 1,500 car parks available for use at UQ.
In 2015, the price of a car park was $2 per hour and during teaching periods 40% of these parks
were taken by 9 am.At the beginning of 2016, the price of a car park was increased to $2.50 per
hour and during teaching periods 39% of these parks were taken by 9am.
Calculate the midpoint price elasticity of demand for the car parks at UQ. Round your answer to
the nearest two decimal places, giving a positive value for elasticity.
8.
2.
1.

Q U E S TI O N 5
1. In the market for alcoholic beverages, a business called Drive-thru Bottle Shop offers a variety of
different bottled wines to their customers. They stock many brands, some being very well-
known, with others less well known.
Answer the following questions:
a. Consider the market for low cost white wines (less than $20) and high cost white wines ($100
and over). Since the high cost wine takes up more of the consumers budget, the point price
elasticity of demand for low cost wine would be than the high cost wine, ceteris
paribus. Type L for Less, M for More or N for No Different.
b. The demand for a particular wine sees customers purchase 20,000 bottles of wine when the price
is $22.99 per bottle, and only 19,500 bottles when the price was increased to $23.49 by the
Drive-thru Bottle Shop management. What is the price elasticity of demand using the mid-point
formula? . Answer to the nearest two decimal places.
c. Assume the Drive-thru Bottle Shop is trying to maximise revenue. Considering your findings in
part b., did the Drive-thru Bottle Shop’s decision to increase the price agree with increasing
revenue? . Type Y for Yes, N for No or U for Unknown.
Q U E S TI O N 6
1. Every year, over 200,000 tourists come from all over the world to visit the Taj Mahal in India.
On any given day outside the Taj Mahal, there are many local vendors selling exactly the same
souvenirs to tourists at the same price.
1. The demand curve of the souvenir market is perfectly elastic.
2. The demand curve of a souvenir vendor is perfectly elastic.
3. The demand curve of the vendor is perfectly inelastic.
Which of the above statements are true:
Only 1 is true.
Only 2 is true.
Both 1 and 2 are true.
Both 2 and 3 are true.
0.11
L
1.18
N

All three are true.
Q U E S TI O N 7
1. A recent food craze in Brisbane has seen an increase in the popularity of doughnuts. The market
for doughnuts is perfectly competitive. Gerald decides to open a single doughnut shop called
Doughnut Love. He will incur fixed costs for store rent, and variable costs include operating the
machinery, ingredients and wages for employees. Assume that Gerald's marginal costs increase
with the total quantity of doughnuts produced and are initially less than his average variable
costs.
As the quantity of doughnuts Gerald produces in his store increases, which of the following
statements are true:
Gerald's average fixed costs will continually decrease as more doughnuts are produced.
Gerald's average variable costs will continually increase as more doughnuts are produced.
Gerald's average variable costs will initially decrease at low levels of doughnut production,
then begin to increase with increased doughnut production.
Gerald's average total cost will be the same as his marginal cost at all levels of doughnut
production.

Q U E S T I O N 8
1. Greg is a producer of banana smoothies in a perfectly competitive market. At his profit-maximising output level, his
average variable cost is $3.80 per smoothie and his average total cost is $4.10 per smoothie. The minimum average
variable cost he can achieve is $3.20 per smoothie.
Select the item from the list provided to make the following statements true.
If the
market
price is
below
_________
_, Greg
should shut
down.
Greg is
making an
economic
profit if the
price is
above
_________
_.
Greg's
average
fixed cost
at his profit
maximising
output level
is
_________
_.
1. $3.20
2. $0.30
per
smoothi
e
3. $0.60
4. $4.10
per
smoothi
e
5. $0.90
6. $3.80
7. $3.20
per
smoothi
e
8. $0.30
9. $4.10
10
.
$0.90
per
smoothi
e
11
.
$0.60
per
smoothi
e
12
.
$3.80
per
smoothi
e
7.
4.
2.

Q U E S TI O N 9
1. With the highly anticipated release of the latest Star Wars film, fans wish to relive the glory of
the previous movies. As a result, a perfectly competitive market for Star Wars DVD box sets has
formed. George is a producer in this market, and has total fixed costs of $220. Other data
relating to costs and output are shown in the table below:
Quantity
(box
sets)
Average Variable
Cost AVC ($/box
set)
0 -
10 8
20 7.20
30 6.50
40 6.10
50 5.80
Using this information, calculate what quantity George needs to produce so that his average
total cost will be $10.20 per box set? Answer to the nearest whole number (with no decimal
places).
50

Q U E S TI O N 1 0
1. Every year at the Brisbane Exhibition (the 'Ekka'), hundreds of vendors
sell Showbags containing an assortment of goods. Assume the market for Ekka Showbags is
perfectly competitive. Kelly is a producer in the Showbag market, selling her Showbags at the
market price of $5.00. At the profit-maximising output level of 57 Showbags, Kelly's average
total cost is $4.10 per Showbag. The minimum average variable cost is $3.80 per Showbag.
Answer the following questions:
a. Kelly's economic profit or loss is (use a negative value if a loss). Answer in dollars,
rounded to two decimal places (ie: to the nearest cent).
b. State whether the following statement is true or false: "At the profit-maximising quantity, Kelly
is making an economic profit of $0.90 per Showbag." Type T for true, or F for false
.
c. State whether the following statement is true or false: "Kelly should shut down if the market
price is $4.09 per Showbag." Type T for true, or F for false .
$51.30
T
F