MAN00023M Managerial Economics Assessment

Question 1 10 marks

Consider a market where supply and demand are given by Q^S = P - 20 and Q^D = 130 - 2P,

respectively. Suppose the government imposes a price ceiling of £44. Calculate the deadweight loss as a result of this price ceiling.

Question 2 10 marks

In a monopoly, limit pricing means

1. that the price converges to the equilibrium price where it equals average costs.
2. setting the price equal to a self-imposed price ceiling to prevent market entry by competing firms.
3. setting the price equal to the long-term equilibrium price.
4. that the price converges to the equilibrium price where it equals marginal costs.

Question 3 10 marks

The yearly demand for bags of Chinese fortune cookies on the European market is given by

As a result of a shock to the demand side, the equilibrium price changes from £0.80 to £0.70 mln. Calculate the price elasticity of supply.

Question 4 10 marks

The effect of a change in price on the quantity demanded can be divided into an income effect and a substitution effect. Maria claims: “The income effect refers to the effect on the quantity demanded of a change in the agent’s budget.” Is this statement TRUE or FALSE?

Section B

Note: The following questions must be answered with worked solutions and complete answers. If no explanation to your answers is provided, you will be awarded 0 marks, even when the answer is correct.

Question 5

Consider the following game in normal form.

1. For what values of a and b is strategy Down dominant for Player 1? (5 marks)
2. For what values of a and b is (Up,Right) a Nash equilibrium of the game? (6 marks)
3. For what values of a and b is (Down,Right) a Nash equilibrium of the game? (6 marks)

Question 6

A consumer has a utility function U(X,Y ) = X1/2Y1/2. Prices of the goods are pX = £10 and pY = £5, respectively, and the consumer has income M = £200 to spend on X and Y. Currently, she buys 2 units of good X and spends the rest of her income on good Y.

1. Determine this consumer’s current utility level. (4 marks)
2. Compute the consumer’s marginal utilities of goods X and Y. (5 marks)
3. Explain why the consumer’s current consumption of goods X and Y is not optimal. Should she substitute X for Y or vice versa? (5 marks) The consumer’s marginal rate of substitution is MRS = Y/X.
4. Determine this consumer’s optimal consumption of both goods. (7 marks)
5. By how much does the consumer’s utility increase when she consumes the optimal bundle? (2 marks)

Question 7

Suppose that the market for cherries in Shandong Province consists of two firms:

Organic herry and Pestic herry. You are the owner of Organicherry, and have discovered a natural way to ward off aphids without resorting to pesticides. This advantage has allowed you to enjoy a relatively higher yield than Pesticherry. You use this advantage to be the first firm to choose its output level. The inverse demand function for a box of cherries is P = 1,125? 5Q (prices are in CN¥). Organicherry’s costs are CO(QO) = 40QO, and Pesticherry’s costs are CP(QP) = 80QP. If there were no official/legal issues in merging the two firm, would it be profitable to merge with Pesticherry? If so, how much would you offer to Pesticherry’s owners? [You may use the facts that, if R(Q) = aQ2 + bQ + c then MR(Q) = 2aQ + b and that, if C(Q) = cQ then MC(Q) = c.] (20 marks)

Are you struggling to keep up with the demands of your academic journey? Don't worry, we've got your back! Exam Question Bank is your trusted partner in achieving academic excellence for all kind of technical and non-technical subjects.

Our comprehensive range of academic services is designed to cater to students at every level. Whether you're a high school student, a college undergraduate, or pursuing advanced studies, we have the expertise and resources to support you.

To connect with expert and ask your query click here Exam Question Bank