Waec Model Questions Vol1 2018 Economics Question 3

Practice essay / theory question 3 from the 2018 Waec Model Questions Vol1 Economics examination. This question covers Elasticity .

Waec Model Questions Vol1 2018 Economics Essay / Theory
Topic: Elasticity
Question 3 WAEC_MODEL_QUESTIONS_VOL1 • 2018 • ECONOMICS • essay

A small‑scale bakery in Lagos sells a standard loaf of bread. The following market information was recorded over two consecutive weeks:

Question Parts

( a )
At the beginning of the first week the price of a loaf was ₦250 and the bakery sold 1,200 loaves. At the beginning of the second week the price was increased to ₦300 and sales fell to 950 loaves. Using the midpoint (arc) method, calculate the price elasticity of demand for the bakery’s bread.
( b )
Interpret the magnitude of the elasticity you obtained. State whether demand is elastic, unit‑elastic or inelastic and explain what this implies for the responsiveness of consumers to price changes.
( c )
Based on the elasticity result, predict what will happen to the bakery’s total revenue if it continues to raise the price of bread. Show the calculation for total revenue at the two observed price‑quantity combinations to support your answer.
( d )
The bakery’s variable cost is ₦120 per loaf. Using your elasticity result and the cost information, advise the baker whether a price increase or a price decrease would be more appropriate to improve profitability. Justify your recommendation with reference to both revenue and cost considerations.

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About This Question

This is Waec Model Questions Vol1 2018 Economics Question 3. It is one of the essay questions from the 2018 Waec Model Questions Vol1 Economics examination.

The question covers Elasticity .

View More Waec Model Questions Vol1 2018 Economics Questions More Waec Model Questions Vol1 Practice Questions Back to Questions

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