Final Micro Spring 2025

1. a. Illustrate why is price elasticity of demand important for business decision-making? Identify the factors determine whether a product is price elastic or inelastic? [7] b. Monica purchases 75 liters oil per month. But price of oil rises from $3 to $5 that reduces consumption to 25 liters. Calculate the price elasticity of demand for Monica for this price change and interpret your result? [3] 2. a. Distinguish between total utility and marginal utility. [4] b. Explain the law of diminishing marginal utility with graph. [6] 3. a. A popular coffee chain lowers its prices. Examine the impact will this likely have on the market demand and the response of competitors? [4] b. Analyze the consequences of excess supply (surplus) and excess demand (shortage) in the market? [6] 4. a. Compare and Contrast between perfect competition and monopoly market. [6] b. Explain why do firms in monopolistic competition spend more on advertising and product differentiation? [4]