Tutorial Sheet -1

UHU-081
Engineering Economics
Q1. Demand and supply functions for a consumer product are;
QD = 5000-6P
QS = 4P
Determine equilibrium price and quantity.
Q2. Demand and supply functions are:
QD= 100000-4P
QS = 6P
Calculate equilibrium price and quantity.
Q3. Calculate price elasticity of demand when a rise in price from Rs. 10 to Rs.12, lower
its demand from 1000 units to 800 units in a local store.

Q4. The sales data of a book publishing company produces a demand function as: Q =
5000-50P
From this demand equation, find:
Demand schedule and demand curve
No. of books sold at 25
Price for selling 2500 copies
Price for zero sale
Sales at zero price
Q5. Explain the effect on market price and quantity in the market for mobile handsets of
following.
Consumer incomes rises
Technical improvement decreases cost of production
Price of landline calls falls
Q6. Use demand and supply curve to analyze what is happening in each of the following
case.
Price of coffee has risen because of a frost in Brazil reducing the coffee crop.
Further fall in chip prices have led to a reduction in the price of laptop.

Tutorial Sheet -2
UHU-081
Engineering Economics
Q1. Calculate the elasticity of demand for the demand curve: P= 100-5Q at each of the following
price and quantity levels:
P =90 and Q=2
P = 50 and Q = 10
P=5 and Q=19
Q2. Define the elasticity of demand and explain why this concept should be of interest to anyone in
business who has to make a choice about the price for selling product.
Q3. The Serpell Report (1983) on Railway Finances in England measured price elasticity of demand
for rail services on some routes to be fairly inelastic (-0.15); hence, suggested fares rise of 40% for
London Commuters. In this case, work out the revenue effect if fares are raised from 10 to 14 and
daily 1000 passengers are travelling on this route. Should the authorities accept this suggestion?

Q4. Panavision, a TV manufacturing company, is planning to increase the price of its television sets
by 10% next year. The economic report of the country has forecasted rise in per capita income by
5% during this period. Panavision economic advisor has estimated price elasticity for the TV set at (1.4) and income elasticity at 2.2. The Panavision currently sells 50,000 TV sets.
Give the forecast for the sales in next period
Is it advisable to raise the price when each TV set is currently priced at Rs. 10000.

Q5. Do you think the price elasticity of demand for Ford sport-utility vehicles (SUVs) will increase,
decrease, or remain the same when each of the following events occurs? Explain your answer.
a. Other car manufacturers, such as General Motors, decide to make and sell SUVs.
b. SUVs produced in foreign countries are banned from the American market.
c. Due to ad campaigns, Americans believe that SUVs are much safer than ordinary passenger cars.
d. The time period over which you measure the elasticity lengthens. During that longer time, new models
such as four-wheel-drive cargo vans appear.
Q.6 Amazon.com, the online bookseller, wants to increase its total revenue. One strategy is to offer a 10%
discount on every book it sells. Amazon.com knows that its customers can be divided into two distinct groups
according to their likely responses to the discount. The accompanying table shows how the two groups respond
to the discount.

a.
b.

Using the midpoint method, calculate the price elasticities of demand for group A and group B.
Explain how the discount will affect total revenue from each group.

c.

Suppose Amazon.com knows which group each customer belongs to when he logs on and can choose whether
or not to offer the 10% discount. If Amazon.com wants to increase its total revenue, should discounts be
offered to group A or to group B, to neither group, or to both groups?

Tutorial Sheet -3
UHU-081
Engineering Economics
Question-1. Fit a linear regression line to the following data and estimate the demand at a price =Rs 30
Year
Price
(Rs.)
Sales
(000
units)

2000
15

2001
15

2002
12

2003
26

2004
18

2005
12

2006
8

2007
38

2008
26

2009
19

2010
29

2011
22

52

46

38

37

37

37

34

25

22

22

20

14

Question- 2 The sales department of a firm is planning to expand sales of Rs. 10 Lakhs. The consultant to the sales
department points out that in the past this firms sales proceeds and advertisement a very high correlation of +.75.
The past data revealed that firms average sales per year has been Rs. 4 Lakhs with a variance of Rs.30000 and its
average annual advertisement expenditure of Rs. 1 Lakh with variance of Rs. 10000. How much advertising
expenditure this firm must, therefore, incur to achieve sales target.

Question-3 From the following data find out the trend equation for sales as per least square method of Times Series
Analysis. Also project the sales in units for next five years.
Year
2000
2001
2002
2003
2004
2005
2006
Total Sales 1150
1020
3050
3000
950
3060
4030
(in units)

Question -4 Demand function or the product of shoe making company is given Q=-.070P+0.45A. Where (P= Price
per pair and A= Advertisement cost per unit). The Company sells 50000 pairs of shoes per annum at Rs. 600 per
pair. What will the annual sales if the company spends Rs. 1 Lakh on advertisement.

Question-5 From the following information from the yaer 2000 to 2011. You are required to find out the trend value
of sales as per 3 years and 5 years moving average method. Also plot the original and trend value on the graph paper.
Year
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Sales
52
46
38
37
37
37
34
25
22
22
20
14
(000
units)

Tutorial Sheet-4
Engineering Economics

Q. 1 If, for a particular combination of labour andcapital, the marginal productivity of

capital is 6 units of output and the marginal rate of technical substitution is 2 units of capital
per unit of labour, calculate the marginal productivity of labour.

Q.2 Let the price of capital be Rs. 60 and that of labour Rs.50. Write the Iso-cost equation for
the outlay of Rs.2000 and calculate the slope of the Iso-cost curve.

Q.3. For each of the following functions determine whether return to scale are decreasing or
increasing or constant?
(a) Q=K/L
(b) Q=100+3K+2L
(c) Q=5kaLb where a=0.6, b=.4
(d) Q=5kaLb where a=0.8, b=.05
(e) Q=2k+3L+KL

Q.4 Given the following production function and input prices , estimate the
optimum input combinations of L & K, assuming that firm has only Rs. 6000
to spend. Additionally assume profit maximization as the objective function
of the firm:
Q= LK-80L
PL=60,PK=30
Where Q the level of output produced , L is labour units ; K is the units of
capital used ,PL =wage rate and PK the rate of interest

Q.5 Given Q=100K0.5L0.5

w=Rs. 50
R=Rs.40
Q=output produced
W=wage rate
r=rental price of capital
Show how to determine the amount of labour(L) and Capital (K) that firm
should use in order to minimize the cost of producing 1118 units of output.
what is the minimum cost