Test Yourself, Exercise 4.1 An economist researching the market for tea assumes that Q = f(Pt, Y, A, N, Pc) 2. 1. where is the quantity of tea demanded, P, is the price of tea, Y is average household income, A is advertising expenditure on tea, N is population and Pe is the price of coffee. (a) What does Qt = f(Pt, Y, A, N, P.) mean in words? - (b) Identify the dependent and independent variables. (c) Make up a specific form for this function. (Use your knowledge of economics to deduce whether the coefficients of the different independent variables should be positive or negative.) If a firm faces the total cost function TC = 6+x² where x is output, what is TC when x is (a) 14? (b) 1? (c) 0? What restrictions on the domain of this function would it be reasonable to make? 3. A firm's total expenditure E on inputs is determined by the formula E = PKK + PLL where K is the amount of input K used, L is the amount of input L used, PK i the price per unit of K and PL is the price per unit of L. Is one unique value for E determined by any given set of values for K, L, PK and PL? Does this mean tha any one particular value for E must always correspond to the same set of value for K, L, PK and PL?
