Problems (Please show all work and remember to label all graphs):

1) Marginal Analysis

You are the manager of GetMoney Inc and you produce cardboard boxes. Suppose that you hired a consultant for your company to estimate the demand for your cardboard boxes. You collect data on the price and quantity of boxes sold and send it to your consultant, who then estimates the inverse demand equation as P = 6 Q.

1. What are the maximum revenues that you can earn based upon this information?
2. At the quantity that maximizes revenues, are marginal revenues positive, negative, or zero? At this quantity, would you recommend increasing production in order to increase revenues? Why or why not. (Please use graphs to support your answer).

2) Supply and Demand/Demand Analysis

Suppose that your analyst estimates the demand equation for good X as given below:

Good X sells for $1 per unit, good Y sells for $2 per unit, and consumer income is $10.

1. Please calculate the own price elasticity of demand, cross-price elasticity of demand between good X and Y, and the income elasticity of demand for good X. If you are unable to calculate any of these values, please state your reason(s)
2. Using the information provided by your analyst, please determine the demand equation.
3. Please calculate the income elasticity of demand for good Y and state whether it is a normal good or inferior good. If you are unable to calculate this value, please state your reason(s).

Q = 10 - 2P, - 4P + 2M