SECTION 1
- The following table shows the demand and supply for a popular pair of shoes sold by Akron Enterprise Limited (AEL).
TABLE 1
Price per pair $ Quantity Demanded Quantity supplied Market Condition Pressure on price
105 25000 75000 Surplus
90 30000 70000
75 40000 60000 Downward
60 50000 50000
45 60000 35000
30 80000 20000 Shortage
15 100000 5000 Upward
Other information regarding AEL are as follows:
Fixed Cost = $2000 Variable Cost = 20Q
Answer all the following questions:
a. Complete the table above: [10 marks]
b. Graphically illustrate market equilibrium using the information in the above table. [4 marks]
c. Calculate and interpret the price elasticity of demand using the midpoint formula as the price of a pair of shoe rises from $60 to $75. [8 marks]
d. Explain and graphically illustrate a price floor implemented by the government using an appropriate price in the table above. [4 marks]
e. If Akron Enterprise Limited sells its product at the equilibrium price, calculate total revenue and total profit. [6 marks]
f. At what level of price(s) identify above is a shut-down price for Akron Enterprise Limited. [4 marks]
g. Graphically illustrate the shutdown position for a typical firm. [4 marks]