Explain the impact of an increase in the price of frozen fries from P0 to P1 on the totalrevenue of processors of frozen fries. Refer to the diagram below in your answer.Demand for frozen fries from family restaurantsQQ 1 Q 0PP1P0abdce f D_________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ (3 marks)
Question
Explain the impact of an increase in the price of frozen fries from P0 to P1 on the totalrevenue of processors of frozen fries. Refer to the diagram below in your answer.Demand for frozen fries from family restaurantsQQ 1 Q 0PP1P0abdce f D_________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ (3 marks)
Solution
The impact of an increase in the price of frozen fries from P0 to P1 on the total revenue of processors of frozen fries can be explained as follows:
-
Price Increase: When the price of frozen fries increases from P0 to P1, the processors of frozen fries will receive more money for each unit of fries they sell. This is because the price is the amount of money that customers pay for each unit of a good or service.
-
Quantity Sold: However, the increase in price from P0 to P1 will also lead to a decrease in the quantity of frozen fries demanded from Q0 to Q1. This is due to the law of demand, which states that as the price of a good or service increases, the quantity demanded decreases, all other things being equal.
-
Total Revenue: Total revenue is calculated as the price per unit multiplied by the quantity sold. In this case, even though the price per unit has increased, the quantity sold has decreased. Therefore, the impact on total revenue will depend on the relative changes in price and quantity. If the percentage increase in price is greater than the percentage decrease in quantity, total revenue will increase. If the percentage decrease in quantity is greater than the percentage increase in price, total revenue will decrease.
Without specific numbers or a diagram, it's impossible to definitively say whether total revenue will increase or decrease. However, this explanation provides the general relationship between price, quantity, and total revenue.
Similar Questions
page 6 of 10Source CConsumers who purchase frozen fries from supermarkets have also been affected by the changesin the market for frozen fries. Supermarket Chain 1, one of Country A’s two supermarket chains,has chosen to hold the price of frozen fries at P1 and has also set buyer limits to help availabilityand affordability for customers.(f ) (i) Use the following diagram to identify the impact on both consumer surplus and producersurplus of Supermarket Chain 1’s decision to hold prices at P1. Write your answer in thetable below.Market for frozen fries at supermarket chainsPP2PeP1 P1Sab cd e f gh i j k l DQQ 2Q eQ 1Consumer surplus if price is Pe Consumer surplus if price is P1Producer surplus if price is Pe Producer surplus if price is P1
Explain how the price mechanism would impact both producers and consumers to returnthe market for frozen fries to equilibrium.
Outline why the change in the market for processing potatoes identified in part (b) islikely to affect the market for frozen fries
Owners of family restaurants have reacted to changes in the market for frozen fries in differentways. Some are making their own fries from table potatoes (which are less suitable for fries) andothers have reduced their serving sizes. Both responses have led to a decrease in the frequencyof consumers eating out. Some owners have even been forced to close their restaurants due to areduced number of customers.(e) Explain the likely effects of the changes in the market for frozen fries on the market for mealsat family restaurants. Complete the diagram below to support your answer
Source DThe other supermarket chain in Country A, Supermarket Chain 2, must now decide if it will followthe decision of Supermarket Chain 1 to hold the price of frozen fries at P1 and set buyer limits.The following payoff matrix shows the revenue ($billion) that each supermarket chain can makewhen it chooses between:• holding price and setting buyer limits• not holding price and not setting buyer limitsSupermarket Chain 1Hold price andset buyer limitsNot hold price andnot set buyer limitsSupermarketChain 2Hold price andset buyer limits1.92.01.72.3Not hold price andnot set buyer limits2.12.21.82.4(g) (i) Use game theory to explain the likely action of Supermarket Chain 2._____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ (2 marks)(ii) Explain why Supermarket Chain 2 must consider the actions of Supermarket Chain 1when deciding whether to hold prices and set buyer limits._____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ (2 marks)
Upgrade your grade with Knowee
Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.