Question

based on local demand. The economic consultant proposes the following demand function for its product x-1000 500Px 51 50Pc Qx-company's demand Px is the price charged for the product; I is average income of an individual customer; Pc is price charged by competitors. The curent values for Px, I, and Pc are Rs15. Rs10000, and Rs20 respectively. The population is estimated at 600000, and the annual increase is estimated at 2% per annum. (a) Using the above conditions, what should be the design production capacity in (3 marks) units per day? (b) Calculate the point price elasticity, cross-elasticity of demand and income elasticity for the product and explain how each indicator can be used as relevant information for the design production capacity (4+4+4marks) (c Estimate the design production capacity which will maximise total revenue of the (3 marks) company. Explain cdearly your method. (d) Explain fully how you would estimate the optimal design production capacity in case the above company is a monopolist (outline clearly the additional (7 marks) information required and your assumptions)