Economics Homework: Analysis of Cost Benefit, Elasticity, and Revenue

This economics assignment solution covers several key concepts. Firstly, it demonstrates a cost-benefit analysis to determine optimal study time allocation between economics and mathematics, using marginal cost and benefit calculations. Secondly, it explores income elasticity of demand, analyzing how changes in income affect the consumption of movies and noodles, classifying them as normal and inferior goods, respectively. The solution computes income elasticity, interprets the results, and considers the impact of economic recession on consumer behavior. Lastly, the assignment addresses revenue maximization, deriving the output level (Q) and price (P) where marginal revenue equals marginal cost (MR=MC). The assignment uses tables to present data and calculations, and references supporting materials.

ECONOMICS

TABLE OF CONTENTS
Question 1........................................................................................................................................3
(A)................................................................................................................................................3
(b).................................................................................................................................................4
Question 4........................................................................................................................................5
REFERENCES................................................................................................................................6

Question 1
(A)
Cost benefit analysis is simply a method under which cost and benefits are computed. In
this regard one peculiarly compute marginal cost and marginal benefit. Marginal cost refers to
the change in cost that happened with production of single unit in the workplace (Pettinger,
2015). Marginal benefit refers to the benefit that one receive on production of each unit. In the
current study also marginal cost and benefits are computed to determine the subject on which
one must pay due attention to gain higher grades.
Hours of study Economics Mathematics
0 70 60
1 77 68
2 82 74
3 85 78
Table 1 Change in grade on per hour basis
Economics grade
on each hour
Mathematics
grade for each
hour
77 68
41 37
28.33 26
Table 2 Change in variables
Change in hours
Change in grade
of economics
Change in grade
of mathematics
1 7 8
1 5 6
1 3 4
Average 1 5 6
Marginal
gain in
marks
on each
hour 5 6

Table 3Marginal cost and benefit of Economics and Mathematics
Economics Mathematics
Marginal benefit 5 6
Real marginal cost 6 5
It can be seen from the table given above that if one will give additional time to
mathematics then it can earn good value of grades during a year. This is because marginal
benefit of mathematics is 6 and marginal cost for same is 5. Thus, only by bearing opportunity
cost of 5 of economics subject one can gain a grade of 6 on mathematics. Hence, main focus
must be on math’s not economics for increment hours. It is concluded that out of 3 hours 2 hours
must be allocated to mathematics and 1 hour must be given to the economics.
In order to derive marginal cost per hour marginal gain for mathematics and economics is
computed. Then change that happened on grades of mentioned subjects per hour is computed and
average of same is calculated. Average of economics is 5 and same of mathematics is 6. This
means that marginal cost for economics will be 6 if one hour more study will be done in same
subject the student will loss an opportunity to gain 6 grades more on the mathematics or vice
versa.
(b)
(1)
Table 4Input for income elasticity
Old income 15000
Updated income 60000 0.3
Frequency of movie (Old) 1
Frequency of movie (New) 11 0.416667
Noddle’s consumption
(Old) 7
Noddle’s consumption
(New) 0 -0.5
Table 5Income elasticity
Movie 1
Noodles -2

Interpretation
For computing income elasticity of demand first of all change in movie as well as
Noddle’s is computed and then both values are divided by sum of new and old income divided
by 2 and in this way mid-point value is computed. On calculation it is identified that income
elasticity for movie is 1 and same for Noodles is -2. This means that 1% increase in income
increase demand of movie by 1% and at same time demand of Noodles declined by -2%.
(2)
On the basis of results of income elasticity Noodles are placed in inferior goods. As
people like to consume noodles regularly only when their income level decreased. Movie comes
in normal as its demand increase with elevation in income level.
(3)
Income elasticity of demand measures the change that comes in demand of the product
with change in income level of the individual. Sometimes price of the prefers product increased
substantially and due to this reason even more consumption is preferred income elasticity
become negative.
(4)
If economy enter in to recession price of products will increase which will lead to decline
in demand for the products (Income elasticity of demand measurement, types and significance,
2016). People will have less savings in their pockets. Hence, demand for movie will be negative
and same of noodles will become positive. Thus, it can be said that revenue of the seller of
noodles will increase but same of movie theater operator will reduce.
Question 4
(1)
MR=P= 24-2Q
MR=MC
When marginal revenue is greater than marginal cost firm earn maximum amount of revenue in
its business.
24-2Q= 6
24=6+2Q

18/2= Q
Q=9
P=15

REFERENCES
Books and journals
Income elasticity of demand measurement, types and significance, 2016. [Online]. Available
through:< http://www.economicsdiscussion.net/elasticity-of-demand/income-elasticity-of-
demand-measurement-types-and-significance/3523>. [Accessed on 21st February 2017].
Pettinger, T., 2015. [Online]. Demand curve formula. Available through :<
http://www.economicshelp.org/blog/glossary/demand-curve-formula/>. [Accessed on 21st
February 2017].