Question 1.1. (TCO A) Suppose you are hired to manage a small manufacturing facility that produces Widgets.
(a.) (15 points) You know from data collected on the Widget Market that market demand has recently increased and market supply has recently decreased. As manager of the facility, what decisions should you make regarding production levels and pricing for your Widget facility?Remember that supply and demand are about the market supply and market demand, which is bigger than your own company. You are being given data on supply and demand for the whole market and are being asked what effect that has on you as a small part of that market.
(b.) (15 points) Now, suppose that following the supply and demand changes in (a), a substitute good goes up in price, and your costs of production decrease. What new decisions will you make regarding production levels and pricing for your Widget facility? (Points : 30)
Question 2.2. (TCO B) Suppose the governor of California has proposed increasing toll rates on California's toll roads, and has presented two possible scenarios to implement these increases. Following are projected data for the two scenarios for the California toll roads:
Scenario 1:Toll rate in 2012: $10.00. Toll rate in 2016: $22.50
For every 100 cars using the toll roads in 2012, only 81.6 cars will use the toll roads in 2016.
Toll rate in 2012: $10.00. Toll rate in 2016: $17.50
For every 100 cars using the toll roads in 2012, only 96.2 cars will use the toll roads in 2016.
a.Using the midpoint formula, calculate the price elasticity of demand for Scenario 1 and Scenario 2. (10 points)
b.Assume 10,000 cars use California toll roads every day in 2012. What would be the daily total revenue received for each scenario in 2012 and in 2016? (6 points)
c.Is demand under Scenario 1 and under Scenario 2 price elastic, inelastic, or unit elastic. Briefly explain. (4 points)
3. (TCO C) You have been hired to manage a small manufacturing facility whose cost and production data are given in the table below.