The state minister for housing wants to increase the number of privately-owned low rental
housing units available by 7%. The current rent for these units P0 is $70 a week. The elasticity
of supply of this type of housing has been estimated to be equal to 0.3 over the relevant period.
Use the information above to answer the following questions:
a) How much is the percentage increase in rent required (rounded to nearest whole
number)? Show workings
b) What is the increase in rent required using the midpoint formula? Show workings
Cutting Edge Pharmaceuticals Pty Ltd (a monopoly firm) has the following demand (average
revenue) function:
AR = 100 – Q
The marginal cost of production is given as constant and equal to $10
a) What is the equation for the MR function? In showing the equation for the MR function
explain the relationship between average revenue and marginal revenue. Determine the
profit maximizing level of output of the firm. Show workings
b) What is the equilibrium monopoly price set by the firm and what will be the monopoly
profit earned? Show workings
c) Illustrate the market demand and marginal cost, average cost of this firm as well as,
profit maximizing price quantity and profit level on a diagram.