SS12 - General Economics with Taxation and Entrepreneurship

Quiz # 2: Problem Solving

Submitted to:
Prof. Gil Astrophel B. Orcena

Submitted by:
Cajayon, Jose Norberto
Flavier, Joselito
Maningas, Kelsey
Mejia, Ian

Group Leader:
Maningas, Kelsey

I.
GIVEN:
PROJ COST = P100k (payable w/ 10% interest rate monthly)
1 month adv. = P15,000
2 months dep. = P30,000
Meralco dep. = P2,000
BIR tax = 15% (of total annual profit to be paid in the succeeding year)
Price of Good X = P14.00
PC = P2,000/day (w/ Meralco)
Q Produced and sold/day = 300

Month

R (P * QD)

PC0

PC1

PC2

P (R PC)

126,000

60,000

45,000

54,166.67

71,853.33

126,000

60,000

69,166.67

56,833.33

126,000

60,000

69,166.67

56,833.33

126,000

60,000

69,166.67

56,833.33

126,000

60,000

69,166.67

56,833.33

126,000

60,000

69,166.67

56,833.33

126,000

60,000

69,166.67

56,833.33

126,000

60,000

69,166.67

56,833.33

126,000

60,000

69,166.67

56,833.33

10

126,000

60,000

69,166.67

56,833.33

11

126,000

60,000

69,166.67

56,833.33

12

126,000

60,000

69,166.67

56,833.33

R = P * QD

PC0 = 2000 * 30 = 60,000

R = 14 * 300

PC1 = 60,000 15,000 = 45,000

R = 4,200

PC2 = 110,000/12 = 9,166.67 (pay monthly to BPI)

Monthly R = 30 * R

P = R - PC

Monthly R = 30 * 4200

P = 126,000 54,166.67

Monthly R = 126,000

P = 71,833.33

Yearly P = 71,833.33 + 11(56,833.33)

Yearly P = 696,999.96
Net Profit = Yearly P 15 %( Yearly P)
Net Profit = 696,999.96 - 0.15(696,999.96)
Net Profit = 592,449.96

1. At the earliest, in what month will the business gain pure profit? Show answers in a
summary matrix and solutions below the matrix with labels.
Answer: The business will gain pure profit on the 13th month of the operation since
the Project Cost was already paid that time.
2. What is the total net profit for Business X in its first year of operation? Show solutions (1
point).
Answer: The total net profit for Business X in its first year of operation is P592,
449.96.
3. What is the opportunity cost of borrowing from BPI? (1 point)
Answer: The opportunity cost of borrowing from BPI is the interest rate of 10% that
added an additional P10,000 to the PC.
4. What is the average cost for good X? (1 point)
Answer: The AC for good X cannot be determined since there is no VC.
5. What is the productions pricing strategy? Show mathematically. (1 point)
Answer: The productions pricing strategy is cost absorption.
AC < 6.67
P = 14
AC < P
Hence, there will be pure profit.

II.

What is the type of price elasticity for Good X in equilibrium? Prove your answer
mathematically & briefly explain your answer.

GOOD X

QD 300300
=
P
1414

QD 0
=
P 0

Since there is no change in P and QD which resulted to market equilibrium, there will be no
price elasticity for Good X.

III.

Population grows faster than food production sustained in 2 consecutive

years However, on the succeeding year, the government noted a positive
impact of the implementation of RH law, and the private firms utilized

advanced technologies in food production. Show graphically and in matrix

(matrices) the market scenario/s and their impacts on price. (5 points)

IV.

Given Philippine market quantities of 25k for Blueberry X at price 5k/unit, a surplus of
35k units is disposed resulting to a drop in the price of Blueberry X to 2k/unit. 1.
What is the new QD? 2. What should be the new EP to restore equilibrium? Show
all solutions (5 points)

GIVEN:

Solution:

P1 = 5,000

QD1P1 = QD2P2

P2 = 2,000

QD2 = QD1P1/P2

QD1 = 25,000

QD2 = 25,000( 5,000)/ 2,000

New EP = 2,000

QD2 = 62,500
Due to the surplus, and in order to dispose all the surplus they have they need to
drop their prices to 2, 000, the new QD will be 62,500 which makes the new
equilibrium to 2,000

V.

In a single graph & in matrix, show a market equilibrium for LRT prepaid tickets
(values of 22, 24, & 25) per station (Station 1 Station 5) on peak hours and nonpeak hours. (5 points)
MQ
Station
Santolan
Katipunan
Anonas
Cubao
Betty Go
Belmonte

Non-Peak hours
5
2
3
4

Peak hours
5
6
3
8

Po
22
22
22
22

P1
24
24
24
24

P2
25
25
25
25

QD
5
5
3
3

QS
5
5
3
3

22

24

25

Stations

Po

P1

Non-Peak hours

Peak Hours

P3

From the graph, for the non-peak hours starting from Santolan to Anonas station is slightly
decreasing, while in Cubao, the non-peak hours increased slightly then went down as it
approaches to Betty Go Belmonte
For the peak hours, starting from Santolan is already high for in that station is crowded, from
Katipunan to Anonas it decreased as most passenger has other destination like Cubao where
passengers usually work has the highest peak hours which means the place is crowded and at
the same time busy and after that it went downfall to Betty Go Belmonte station.

Even though the prices are different, the quantity demanded and the quantity supplies is
the same making a market equilibrium.

VI.

Convert to a matrix one (1) graph of your choice, and comparatively interpret it:
(maximum of 5 sentences/graph; 4 points)

VOTING PREFERENCE FOR PRESIDENT

(FEBRUARY 2016 PRE ELECTION SURVEY, IN %)
Jejomar C.
Binay

Grace Poe

Rodrigo R.
Duterte

Manuel A.
Roxas II

Miriam
Defensor P.
Santiago

21

19

10

15

31

15

15

11

June 5 8

20

42

20

21

Sept. 2 5

11

26

11

20

Nov. 26 28

38

21

38

15

Dec. 12 14

20

26

20

22

Jan. 8 10,
2016

20

24

20

21

Feb. 5 7

24

24

24

18

Time Frame
Nov. 27 Dec. 1, 2014
Mar. 20
23 , 2015

Jejomar Binay got a low rating at the start of the survey but got his highest rating during
November 26 28 of the year, 2015. Grace Poe got her highest peak at 42% during June 5 8
of the year, 2015 but immediately dropped and maintained a rating of about 21% 26%.
Rodrigo Dutertes ratings started as low as 5% but when he announced about his presidency, it
instantly risen up to 38%. Manuel Roxas had just a normal rating that ranging from 15% - 22%.
Miriam Defensor Santiago was loud at first part of the surveys but her ratings constantly
became low that range from just 2% - 4%.

VII.

Graph the matrix below, and briefly discuss it in not more than 5 sentences (4
points)

PRESIDENTIAL DEBATES: LEADERSHIP CRITERIA

BINAY

POE

DUTERTE

ROXAS

SANTIAGO

Roxas got the highest rating on the leadership criteria in terms of being effective and ethical,
scoring a 5, although a due to him being second on the top, next to Poe on the criteria of
empowering, there is only a 1 unit ahead. Poe together with Binay have the same score of 2 of
being effective which is the lowest rating on the said criteria followed by the Duterte and
Santiago, scoring a 3. Binay got a score of 0 for being ethical, followed by Duterte scoring a 2
and Santiago and Poe scoring a 3 and 4. The graph shows that Binay has the lowest rating in
terms of all the criteria in able for. The total ratings ranking from highest to lowest: Roxas=13,
Poe= 10, Santiago= 8, Duterte= 6, and Binay=4.

VIII.

A 50% drop in the price of Good X results to a 25% in its QD. Show, provide for, or
perform the following: (7 points; 1 point each)
a.) Graphical representation of the demand scenario

Price and QD of Good X

2

b.) One-sentence description & analysis of your graph

A 50% drop in the price of Good X results to a 25% increase in the QD of
good x, yielding inelastic demand.
c.) Mathematical solution showing its type of demand elasticity

|
Q /
P | * 100
= | Q1 Q0 / P1 - P0 | *100
= | 1.25 1 / 1 2 | *100
= *100
=25%
*If e < 100% then the demand elasticity is inelastic
d.) Its impact on revenues
R0 = P0 * QD0
R1 = P1 * QD1
R0 = 2 * 1
R1 = 1 * 1.25
R0 = 2
R1 = 1.25
R = R1 R0
= 1.25 2
R = -0.75
*The revenue resulted to a loss by 0.75 units.
e.) Its impact on profits on the assumption that PC=Ro (Note that PC is constant)
PC = R0
2=2
PRO 0 = R0 PC0
PRO 1 = R1 PC1
PRO 0 = 2 2
PRO 1 = 1.25 - 2
PRO 0 = 0
PRO 1 = -0.75
*The profit resulted to a loss by 0.75 units.
f.) Profit analysis / producers decision
Based on the results accumulated, the producer shouldnt continue on
dropping the price by 50% because he will only lose profit given only a
25% increase in quantity demanded.
g.) An interesting example of a good and/or service with that type of elasticity. Justify
your choice.
An example of a good with an inelastic demand elasticity is the School
Uniform of students. The price of a school uniform will not affect the
demand drastically. For example, every student will only buy 1 or 2 set of
uniforms per year. So even if the producer will decrease its price by 50%
the consumer will not buy 2 or 3 more set of uniforms because he/she will
only need 1 or 2 sets. In this type of product, the demand will not be
greatly affected because a consumer already has a constant number of
uniform that he/she will only need.