TECO401 Principle Of Economics

Questions: Question 1:Suppose you are in charge of sales at a pharmaceutical company, and your firm has a new drug that causes bald men to grow hair. Assume that the company wants to earn as much revenue as possible from this drug. If the elasticity of demand for your company’s product at the current price is 1.4. would you advise the company to raise the price, lower the price, or keep the price same? What if the elasticity were 0.6? what if it were 1? Explain your answer.   Question 2:Automobile manufacturing is an industry subject to significant economies of scale. Suppose there are four domestic auto manufacturers, but the demand for domestic autos is no more than 2.5 times, the quantity produced at the bottom of the long run average cost curve. What do you expect will happen to the domestic auto industry in the long run? Question 3:For a High income economy like Australia, what aggregate production function elements are most important in bringing about growth in GDP per capita? What about a middle-income country such as India? A low-income country such as Afghanistan? Question 4:Imagine that the government statisticians who calculate the influence rate have been updating the basic basket of goods once every 10 years, but now they decided to update every 5 years. How will this change affect the amount of substitution bias and quality new good bias?