SHORT ANSWER. Use the Bluebook to record your answers. Show all work. Partial creditmay be awarded. Seventy (70) total points.11. (15 TOTAL POINTS.) Economists at Titleist, a company that produces golf-relatedgoods, are interested in analyzing the domestic market for golf bags. Suppose marketdemand for golf bags is given by Q = 1000 â 10P and market supply is given byQ = 40 + 6P, where Q is the quantity of golf bags (in thousands) and P is the price.a. What is the market-clearing price of golf bags? (3 points.)b. What is the competitive equilibrium quantity of golf bags (in thousands)?(3 points.)c. If the price is $40, is there a surplus or a shortage? What is the magnitude of thissurplus or shortage (in thousands of golf bags)? (3 points.)d. What is the absolute value of the price elasticity of demand in competitiveequilibrium? (3 points.)e. What is the price elasticity of supply in competitive equilibrium? (3 points.)12. (12 TOTAL POINTS.) Suppose the demand for toaster ovens is given by the expression:QT = 5,000 â 200PT + 50I + 5PM,where:PT is the price and QT is the quantity demanded of toaster ovens,I is per capita disposable income, andPM is the price of microwave ovens.Assume that per capita disposable income I = $80, the price of toaster ovens PT = $20,and the price of microwave ovens PM is $200.a. Calculate the price elasticity of demand for toaster ovens. Based on yourcalculation, is demand for toaster ovens price elastic, inelastic, or unit elastic?(3 points.)b. Calculate the income elasticity of demand for toaster ovens. Based on yourcalculation, are toaster ovens normal or inferior goods? (3 points.)c. Calculate the cross-price elasticity of demand between toaster ovens andmicrowave ovens. Based on your calculation, are toaster ovens and microwaveovens substitutes, complements, or unrelated goods? (3 points.)d. If the price of toaster ovens is free to vary, at what price will total revenue fromthe sale of toaster ovens be maximized? (3 points.)313. (10 TOTAL POINTS.) Bernie likes to eat x-cat-ik chile peppers, but recognizes that hewill be very uncomfortable if he does not concurrently consume yogurt. Indeed, Bernieonly likes yogurt because it is soothing to his palette, but it takes two pints of yogurt tooffset the debilitating effects of consuming one spicy x-cat-ik chile pepper. Accordingly,Bernie perceives one x-cat-ik chile pepper and two pints of yogurt to be perfectcomplements. This means that Bernieâs utility function is given by the expressionU(x, y) = min(2x, y), where x is the quantity of x-cat-ik chile peppers and y is the numberof pints of yogurt.Suppose that Bernie has $250 to spend on x-cat-ik chile peppers and pints of yogurt.Further suppose that the price of one x-cat-ik chile pepper is $1, and the price of one pintof yogurt is $12.a. What is Bernieâs utility maximizing bundle of x-cat-ik chile peppers and pints ofyogurt subject to his budget constraint? (8 points.)b. What is Bernieâs maximum level of utility? (2 points.)14. (10 TOTAL POINTS.) Hillary is interested in purchasing cola for a forthcomingfundraising gala. While at the supermarket, she finds that she forgot her purse at home,which means that she cannot use credit to finance her purchase. After rummagingthrough her pockets, she finds that she has exactly $60 to spend on cola.While walking through the soda aisle at the supermarket, Hillary is disappointed to findthat the supermarket only sells 12-ounce cans of Coca Cola (c) and 20-ounce bottles ofPepsi Cola (p). The price of one 12-ounce can of Coca Cola is $0.75, while the price ofone 20-ounce bottle of Pepsi Cola is $1.35.Per ounce, Hillary considers Coca Cola and Pepsi Cola to be perfect substitutes. Sincethese two colas are sold in different quantities but are nonetheless perfectly substitutableper ounce, Hillaryâs utility function is given by U(c, p) = 12c + 20p.a. What is Hillaryâs utility maximizing bundle of 12-ounce cans of Coca Cola and20-ounce bottles of Pepsi Cola subject to her budget constraint? (8 points.)b. What is Hillaryâs maximum level of utility? (2 points.)15. (23 TOTAL POINTS.) Donald is a high-school student who recently receivedcomplimentary tickets to attend the world premier of the newest Star Wars movie. Hedoes not have a job, so he anticipates asking his parents for I dollars to spend at thetheaterâs concession stand. Suppose the concession stand only sells pints of popcorn (p)and packages of M&Ms candy (m), and he anticipates exhausting his entire allowance ofI dollars on these two goods. Let pp be the price of one pint of popcorn, and pm be theprice of one package of M&Ms candy. Suppose that Donaldâs utility function, whichcaptures his satisfaction from consuming popcorn and M&Ms, is given byU(p, m) = 2p0.3m0.7.4a. What is Donaldâs demand function for pints of popcorn? What is Donaldâsdemand function for packages of M&Ms candy? (6 points.)b. Suppose the price of one pint of popcorn is $5.00 and the price of one package ofM&Ms is $3.50. Since Donald does not have a job, assume that his parents gavehim $50 to spend at the theater. What is Donaldâs utility maximizing bundle ofpints of popcorn and packages of M&Ms? (6 points.)c. What is Donaldâs maximum level of utility? (2 points.)d. Now suppose the price of one pint of popcorn decreases from $5.00 to $2.50.What is the (Slutsky) substitution effect of the price change on Donaldâsconsumption of pints of popcorn? What is the income effect of the price changeon Donaldâs consumption of pints of popcorn? What is the total effect on hisconsumption of pints of popcorn? (6 points.)e. What is the cross-price elasticity of demand between pints of popcorn andpackages of M&Ms? (3 points.)5