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You're on a roll — QUESTION 1 a. What is the actual price each motor bike in Papua New Guinea Kina? Step 1: Identify the price in Australian Dollars and the initial exchange rate. Price in AUD = A2,000 Initial exchange rate = K1 = A1 Step 2: Convert the price from AUD to Kina. Since K1 = A1, the price in Kina is numerically the same as in AUD. Price in Kina = Price in AUD × KinaAUD = A\2,000 × K1A\1 = K2,000 The actual price each motorbike in Papua New Guinea Kina is K2,000. b. Find the total revenue received by the firm in Papua New Guinea Kina. Step 1: Identify the price per motorbike and the number of sales. Price per motorbike = K2,000 (from part a) Sales = 150 motorbikes Step 2: Calculate the total revenue. Total Revenue = Price per motorbike × Number of sales Total Revenue = K2,000 × 150 = K300,000 The total revenue received by the firm is K300,000. c. The rate of exchange changes to K1 = A0.25. Does this represent a depreciation or appreciation? Step 1: Compare the initial and new exchange rates. Initial rate: K1 = A1 New rate: K1 = A0.25 Step 2: Determine the change in value of the Kina. The Kina now buys fewer Australian Dollars (A0.25 instead of A1). This means the Kina has become weaker. This represents a depreciation of the Papua New Guinea Kina. d. What would be the new price of each motorbike in Papua New Guinea Kina? Step 1: Identify the price in Australian Dollars and the new exchange rate. Price in AUD = A2,000 New exchange rate = K1 = A0.25 Step 2: Convert the price from AUD to Kina using the new exchange rate. To find out how many Kina are in A1, we can rearrange the exchange rate: A\1 = K10.25 = K4 Now, convert the price of the motorbike: New Price in Kina = Price in AUD × KinaAUD = A\2,000 × K4A\1 = K8,000 The new price of each motorbike in Papua New Guinea Kina would be K8,000. e. What will happen to the demand for motorbike in Papua New Guinea? Step 1: Observe the change in price. The price of the motorbike increased from K2,000 to K8,000. Step 2: Consider the law of demand. According to the law of demand, an increase in price generally leads to a decrease in quantity demanded. The demand for motorbikes in Papua New Guinea will decrease. f. If the demand for motor bike has not changed despite the change in price, what would be the new revenue for the firm? Step 1: Identify the new price and the assumed unchanged demand. New price per motorbike = K8,000 (from part d) Assumed sales (unchanged demand) = 150 motorbikes Step 2: Calculate the new revenue. New Revenue = New Price per motorbike × Assumed sales New Revenue = K8,000 × 150 = K1,200,000 The new revenue for the firm, assuming demand has not changed, would be K1,200,000. g. What is the state of elasticity of demand for the motor bike? Step 1: Identify the given price elasticity of demand. Price elasticity of demand = 0.5 Step 2: Determine the state of elasticity. Since the price elasticity of demand (0.5) is less than 1, the demand is inelastic. The state of elasticity of demand for the motorbike is inelastic. Drop the next question.