You are the manager of Zokia Ghana Limited, a producer of beans. In Ghana, it is possible to produce beans or groundnut using the same resources. Therefore, producers are able to switch from beans to groundnut production depending on market conditions. Consequently, Zokia consulted an Economist who estimated the demand function for beans as: Q = 600 – 4P, – 0.03M – 12P, + 15T + 6Pe + 1.5N where is the quantity demanded of beans each month, På is the average price of beans (in Ghana Cedis), M is the average household income (in GH¢), P, is the price of groundnut (in GH¢), T is a consumer taste index ranging in value from 0 to 10 (the highest rating), Pe is the price (in GH¢) consumers expect to pay next month for beans, and N is the number of buyers in the market for beans. Assume the following initial values: Ps-5, P,= 40, T¯ 6.5, P.=5.25, N=2000, Q =2479 Using the concept of own price elasticity, advise management on price change in order to increase revenue. a) b) Explain to your Board of Directors why management shoukd be worried about a rise in the price of groundnut. As a results of the effect of COVID-19 on the economy, the government has proposed an income cut policy. Labour unions have planned a demonstration against this policy and management of Zokia Ghana Limited is considering joining the demonstration. Explain the need to join or not to join the demonstration to your workers using the concept of income elasticity of demand. c)
You are the manager of Zokia Ghana Limited, a producer of beans. In Ghana, it is possible to produce beans or groundnut using the same resources. Therefore, producers are able to switch from beans to groundnut production depending on market conditions. Consequently, Zokia consulted an Economist who estimated the demand function for beans as: Q = 600 – 4P, – 0.03M – 12P, + 15T + 6Pe + 1.5N where is the quantity demanded of beans each month, På is the average price of beans (in Ghana Cedis), M is the average household income (in GH¢), P, is the price of groundnut (in GH¢), T is a consumer taste index ranging in value from 0 to 10 (the highest rating), Pe is the price (in GH¢) consumers expect to pay next month for beans, and N is the number of buyers in the market for beans. Assume the following initial values: Ps-5, P,= 40, T¯ 6.5, P.=5.25, N=2000, Q =2479 Using the concept of own price elasticity, advise management on price change in order to increase revenue. a) b) Explain to your Board of Directors why management shoukd be worried about a rise in the price of groundnut. As a results of the effect of COVID-19 on the economy, the government has proposed an income cut policy. Labour unions have planned a demonstration against this policy and management of Zokia Ghana Limited is considering joining the demonstration. Explain the need to join or not to join the demonstration to your workers using the concept of income elasticity of demand. c)
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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