MAN00023M Managerial Economics Assignment

Question 1

Consider the following demand curve

Suppose that currently the price on the market is P=4 and the resulting quantity demanded is a, where a follows from your student number. You may assume that at this price level the quantity supplied is at least the quantity demanded.

1. Give the values of a, b, and c that follow from your candidate number. (0 marks)
2. At this price level, if a units are sold, calculate the total consumer expenditure. (2 marks)
3. Calculate the point price elasticity of demand. (4 marks)
4. At this price level, is demand price elastic or inelastic? (2 marks)
5. For the total consumer expenditure to increase, should the price on the market increase or decrease? (2 marks)

Question 2

Explain by means of diagrams how the price-consumption curve is different for goods that are perfect substitute and goods that are perfect complements. (10 marks)

Questions 3

Consider the following production function that depends on Labour, Capital, and Materials

Q=F(K,LM)=min{K/4,L,M}

1. Calculate the quantity produced for K=8, L=1, M=2. (3 marks)
2. If the wage rate is w = $(c+2) where c follows from you r student number the rental rate of capital is r = $20, and the materials costs per unit M are set to m=½ rK, find the cost minimizing mix for producing 2 units (ie C(2)). (4 marks)
3. Are the inputs complements or substitutes? Explain your answer. (3 marks)

Question 4

Consider a monopoly with the following inverse demand function P= 12 ? 1.6, the marginal revenue is MR=12-3.2q, a marginal cost and AC = Q+(b+1) where b follows from your student number. You may assume that TFC=0.

1. Derive the total revenue function. (1 marks)
2. Find the monopoly profit maximizing price and quantity. (3 marks)
3. Find the consumer surplus. (3 marks)
4. What would the equilibrium price be if this was a perfectly competitive market? (3 marks)

Question 5

A market is characterised by the following demand function Q= 90 ?P .Two firms are faced with identical marginal cost functionsMCi = (b+10)+Qi=1,2 where b is derived from your student number. The total quantity demanded is given by Q=Q1+Q2.The cost function for each firm isCi = (10 +b)Qi + 1/2Qi²

1. Now assume that the firms start competing ‘a la Cournot’. Find the reaction function for each firm. (4 marks)
2. What is the total industry output under Cournot? (3 marks)
3. Suppose the government introduces a price ceiling of P=60. Find a combination of quantities Q1 and Q2 that constitute a Cournot-Nash equilibrium. (3 marks)

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