To draw Khumo's budget line, we will use a graph with movies on the x-axis and bottles of wine on the y-axis.
Let's assume Khumo spends all her income on movies and bottles of wine, meaning she spends all her P500 each week. We can start by calculating the maximum number of movies and bottles of wine Khumo can afford with her weekly income.
Price of a movie = P10
Maximum number of movies = Total income / Price of a movie = P500 / P10 = 50 movies
Price of a bottle of wine = P10
Maximum number of bottles of wine = Total income / Price of a bottle of wine = P500 / P10 = 50 bottles of wine
Now we can plot Khumo's budget line. Start at the origin (0,0), and plot the point (50,0) on the x-axis (movies) and the point (0,50) on the y-axis (bottles of wine). Draw a straight line connecting the two points.
The shaded area represents Khumo's budget, which includes all combinations of movies and bottles of wine that she can buy with her weekly income of P500.
khumo earns P500 per week. she spends her entire income in two goods, movies and bottles of wine. the price of a movie is P10and the price of a bottle of wine is P10. Draw Khumo's budget line and shade in her budget
5 answers
the price elasticity of demand for restaurant meals is 1.5 for type A consumers and 0.9 for type B consumers. if a restuarant decides to price discriminate, which group will be charged a higher price? explain your answer
If a restaurant decides to price discriminate, it will charge a higher price to the group with a lower price elasticity of demand. Price elasticity of demand measures the responsiveness of quantity demanded to a change in price.
In this case, type A consumers have a price elasticity of demand of 1.5, while type B consumers have a price elasticity of demand of 0.9. A higher elasticity means that consumers are more responsive to changes in price, meaning that a small increase in price will lead to a relatively larger decrease in quantity demanded.
Therefore, type B consumers are less responsive to price changes compared to type A consumers. This implies that type B consumers are more willing to pay higher prices, meaning they have a higher willingness to buy even at higher price levels. As a result, the restaurant can charge higher prices to type B consumers and still expect a reasonable level of demand.
In summary, the restaurant will charge a higher price to type B consumers as they have a lower price elasticity of demand and are more willing to pay higher prices.
In this case, type A consumers have a price elasticity of demand of 1.5, while type B consumers have a price elasticity of demand of 0.9. A higher elasticity means that consumers are more responsive to changes in price, meaning that a small increase in price will lead to a relatively larger decrease in quantity demanded.
Therefore, type B consumers are less responsive to price changes compared to type A consumers. This implies that type B consumers are more willing to pay higher prices, meaning they have a higher willingness to buy even at higher price levels. As a result, the restaurant can charge higher prices to type B consumers and still expect a reasonable level of demand.
In summary, the restaurant will charge a higher price to type B consumers as they have a lower price elasticity of demand and are more willing to pay higher prices.
suppose the widget industry is perfectly competitive and faces constant returns to scale. a monopoly purchases all widget producers in the market. list three ways in which the market outcome under monopoly will differ from the market outcome under perfect competition.
Under a monopoly, the market outcome will differ from the market outcome under perfect competition in the following three ways:
1. Price and Quantity: In a perfectly competitive market, price and quantity are determined by the interaction of supply and demand. The presence of a monopoly leads to a decrease in competition, allowing the monopoly firm to have control over both price and quantity. Therefore, the monopolist can choose a higher price and restrict the quantity supplied to maximize their profits. This results in a higher price and a lower quantity of widgets compared to a perfectly competitive market.
2. Profits: In a perfectly competitive market, firms are unable to earn long-term economic profits due to fierce competition. In contrast, a monopoly has control over the market and can restrict competition. As a result, the monopolist has the ability to earn significant economic profits, even in the long run. The absence of competition allows the monopoly firm to enjoy above-normal profits, leading to a redistribution of surplus from consumers to the monopolist.
3. Resource Allocation: Perfect competition generally results in efficient resource allocation. In contrast, a monopoly disrupts the efficient allocation of resources. With a monopoly controlling the market, it can potentially produce a lower quantity of widgets at a higher price, resulting in a misallocation of resources. This inefficiency arises from the fact that the monopolist does not face the same level of competition, meaning resources are not allocated in the most productive and efficient manner.
Overall, a monopoly in the widget industry leads to higher prices, reduced quantities supplied, increased profits for the monopolist, and a less efficient allocation of resources compared to the market outcome under perfect competition.
1. Price and Quantity: In a perfectly competitive market, price and quantity are determined by the interaction of supply and demand. The presence of a monopoly leads to a decrease in competition, allowing the monopoly firm to have control over both price and quantity. Therefore, the monopolist can choose a higher price and restrict the quantity supplied to maximize their profits. This results in a higher price and a lower quantity of widgets compared to a perfectly competitive market.
2. Profits: In a perfectly competitive market, firms are unable to earn long-term economic profits due to fierce competition. In contrast, a monopoly has control over the market and can restrict competition. As a result, the monopolist has the ability to earn significant economic profits, even in the long run. The absence of competition allows the monopoly firm to enjoy above-normal profits, leading to a redistribution of surplus from consumers to the monopolist.
3. Resource Allocation: Perfect competition generally results in efficient resource allocation. In contrast, a monopoly disrupts the efficient allocation of resources. With a monopoly controlling the market, it can potentially produce a lower quantity of widgets at a higher price, resulting in a misallocation of resources. This inefficiency arises from the fact that the monopolist does not face the same level of competition, meaning resources are not allocated in the most productive and efficient manner.
Overall, a monopoly in the widget industry leads to higher prices, reduced quantities supplied, increased profits for the monopolist, and a less efficient allocation of resources compared to the market outcome under perfect competition.
1 answer