ECO401 Assignment 1 Solution 2023
MARKS: 10
DUE DATE: 24 May, 2023
The Case:
Suppose XYZ is a coffee shop and located in one of the busy crowded university of Pakistan. This coffee shop is a popular spot for people to sit and discuss their studies and it is also famous for a quick cup of coffee on their way to class. The shop is open from 9:00 AM to 6:00 PM, Monday through Friday. The shop is currently selling 2,000 cups of coffee per day for Rs 200. The owner of the coffee shop is considering raising the price of a cup of coffee from Rs. 200 to Rs. 250. Coffee shop demand function is given below Qd = 6000 — 20P.
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ECO401 Assignment 1 2023
Requirements:
A. Calculate price elasticity of demand when price is Rs. 250. B. Calculate total revenue both before and after price rise. C. Also explain what will be the effect of price increase on total revenue by keeping in view the results of part B?
(Marking scheme: 4+4+2)
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