Exercise 1
Assume that you are selling 5000 units of your output at the unit price of 50$. Assume, moreover, that you know that the price elasticity of demand is equal to 0.3. What will be the impact on your sales and on your total revenue of raising the unit price from 50$ to 60$?
Exercise 2
The diagram shows the budget line of a consumer whose income is $6000.

Indicate and explain how you obtained these results:
a) The price of good X
b) The price of good Y
c) The opportunity cost of one unit of good Y
d) Imagine that consumer's income declines to $5000 while the price of one unit of Y rises by 50%. Draw in a clear graph the new budget line and indicate the new opportunity cost of one unit of X.
Exercise 3
Define income-elasticity of demand and its connection with the difference between normal and inferior goods. Explain why, as an enterpreneur, you should care about the value of the income elasticity of demand during a boom or a slump. Define also the cross-elasticity of demand and its connection with the difference between complementary and substitute goods.
Exercise 4
Explain, also by means of the appropriate graphic tools, how a monopolist chooses the quantity of output to produce and the price to charge. Explain also why and how a monopolist should try to enforce price discrimination. Draw a clear graph in your answer.
Exercise 5
Explain, by using the graphic tools of Chamberlin's model, why the uncertainty about the price elasticity of demand can set in a dynamics leading to the exit of some firms from an industry. Draw a clear graph in your answer.
Exercise 6
Explain the essence of the break-even analysis. Explain, moreover, by using the appropriate graphical tools how firms set prices and output according to Andrew's model. Draw a clear graph. Specify also the notions of mark up and profit margins and how firms react when actual sales diverge from the expected sales.
Exercise 7
Explain the notion of residual demand curve and why it is relevant in the context of Cornet's duopoly theory. Define also the notion of Nash Equilibrium and how it can be represented by means of game theory.
Exercise 8
General Motors is thinking about building a new factory. The factory cost (today) is $280 millions and the perspective yield is $312 millions in 3 years. Can you explain whether GM will undertake the project if the interest rate is 5%? Would you give the same answer if the interest rate were 2%? To answer this question, use the three notions of present value, future value and IRR.
Exercise 9
Explain the notion of Ricardian rent and why it can be relevant for a company earning extra profits in the short run.

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