Problem 1: Advance Analysis——Page 1

Currently, at a price of $1 each, 100 popsicles are sold per day in the perpetually hot town of Rostin. Consider the elasticity of supply. In the short, run, a price increase from $1 to 42 is unit-elastic

(E, +1.0). So how many popsicles will be sold each day in the short run if the price rises to $2 each? In the long run a price increase from $1 to $2 has an elasticity of supply of 1.50. So how many popsicles will be sold per day in the long run if the price rises to $2 each? (Hint: Apply the midpoints approach to the elasticity of supply.)

Problem 2: Advance Analysis——Page 2

Let MUa=z=10-x and measured in utlis, x is the amount spent on product A, and y is the amount spent on product B. Assume that the consumer has $10 to spend on A and B-that is, x+y=10. How is the $10 best allocated between A and B that is, x+y+ 10. How the $10 is best allocated between A & B? How much utility will be marginal dollar yield?

Form, format, presentation, and appearance are almost as important in accounting and auditing as correct numbers. Poor presentation, in both written work (Word) and spreadsheets (Excel) is an indication of careless thinking and analysis. You cannot earn full credit, even if the solutions are correct, if your work is not presented in a professional manner. On the other hand, it is possible to receive full credit for professionally presented work even if the solution is not absolutely correct.

All submitted written work must include an introduction. Include all relevant facts, dates, persons, et cetera, and a statement of what you are doing and why. Avoid using the first person.

Conclusions must be supported. Numbers and calculations are not self-explanatory. In fact, numbers and calculations are not the analysis. After you perform the calculations, you must then analyze (interpret and explain) the results.

Your analyses, papers, projects, and the like must be prepared “in good and proper form.” That means, for example, when you prepare financial information, your numbers must be aligned on the decimal and right justified. Use commas for thousands. Use underlines and dollar signs appropriately. Every number must be properly labeled and supported with calculations. This does not mean to type or show the formulas. It means to “show” the calculations in statement or schedule (table) form. Do not type formulas, equations, and calculations or show math or equal signs. Your client is not interested in reading formulas.

When finished, submit your completed problems in one file (Word or Excel) for grading and instructor feedback.

Word file: The cover page must include your name, school, date, unit and assignment numbers, textbook chapter number, and problem number. Each problem must begin on a new page with a hard page-break. If you use Word to prepare calculations, prepare them in table form as if it were in Excel. Do not write anything past the margins.

Excel file: The first tab is the cover page with the same information as above. Each problem must be on a separate tab. Each tab must be properly labeled. Note that Excel is not actually required, but if you use Excel, you must use it correctly. One number in one cell, and each number (cell) properly labeled. Do not type formulas. You cannot use a calculator in Excel. You must use Excel functions to calculate. Do not write anything past the margins. Use landscape if necessary.

These tips will help you when completing the paper, insert graph, chart and/or excel worksheet if needed.

1) Advanced Analysis’ problem: 1

2) Note that this is elasticity of SUPPLY (not demand). The question really should state “how will be offered for sale” rather “how many will be sold”.

Note that price elasticity = percentage change in quantity divided by percentage change in price.

For example: suppose elasticity is 0.2. Then

0.2 = (percentage change in quantity) divided by (percentage change in price).

And if the percentage change in price is 10 then

0.2 = (percentage change in quantity) divided by (10).

This means the percentage change in quantity must be 2:

0.2 * 10 = percentage change in quantity

You can use the mid-point calculation to calculate the percentage changes. For example, going from 20 to 22 is either a 10% change or a 9% change, depending on how you calculate.

2/20 = 10%

2/22 = 9%

The mid-point approach is a compromise:

2/21 = 9.5%

3) For Problem 2: Note, the marginal utilities are ‘per dollar spent on the good’. Solve by setting the two equal to each other (because in equilibrium the MU obtained from one good is equal to the MU obtained from the other good (per dollar spent)).