Managerial Economics
MANAGERIAL ECONOMICS
1 Construct a Supply/Demand (S/D) graph, identify the
initial equilibrium, then identify the new equilibrium when Supply decreases
and Demand increases
2 In the graph for question number 1, what would happen to
the initial equilibrium when consumer incomes increase, assuming the good in
question is an inferior good? Explain your answer using an S/D graph
3 Given the following equation: Q=20 – 2p + 35I – 13S,
where Q is quantity, P is price, I is income, and S is the price of a related
good, what is the own price elasticity of demand when Q=20 and P=5? What is the
cross price elasticity assuming S=15 and Q=20? Is the good a substitute or a
complement?
4 Draw one graph showing a Demand curve, and the
corresponding Marginal Revenue curve; also, show the price elasticity ranges
along the Demand Curve
5 Write a short essay explaining why a profit-maximizing
manager should never set price in the Inelastic portion of the demand curve
6 Assume the following equation where quantity is a
function of price: Q = a + b P Identify the Y-intercept and the slope that
this equation would generate for a normal Demand Curve (By normal I mean the
way a Demand Curve is drawn in the undergraduate classes where Price is on the
vertical axis and Quantity is on the horizontal axis, or where price is a
function of quantity)
7 Briefly identify four determinants of own-price
elasticity
8 Explain why a firm that uses all fixed cost and zero
variable cost will always price in the unit elastic range of the demand curve