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Managerial Economics Homework Assignment 2015

Question # 00114384
Subject: Economics
Due on: 10/16/2015
Posted On: 10/09/2015 01:20 AM

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Problem 1 (5 points). For each one of the costs below, explain whether the resource cost is explicit or implicit, and give the annual opportunity cost for each one.

  1. A telephone/voicemail system for the entire firm is leased for $15,000 per year.

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  2. .5in;="" left="" .75in="" list="">The owner starts the business with savings of $150,000. Currently the owner could earn 3.25% annual interest on money invested.

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  3. .5in;="" left="" .75in="" list="">Clerical employees are paid $3,375 a month and the firm hires four each year.

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  4. .5in;="" left="" .75in="" list="">Before starting this business, the owner was offered a salary of $90,000 per year to manage a rival firm.

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Problem 2 (10 points). In your own words, fully explain howeconomic models simplify reality and help us to better understand important aspects of it.

Problem 3 (5 points). Explain what the conditions are that an exchange must satisfy in order to make two individuals participate in it.

Problem 4 (10 points). Fab Tools Inc. can produce 150 widgets and 100 axes in a month. Another company AllMyTools Inc. can produce 80 widgets and 50 axes per month. Sketch the production sets and calculate the marginal costs.

Problem 5 (10 points). Suppose the seller’s opportunity cost of producing shirts is $12 and the buyer’s valuation is $22. If the seller gains $2 more than the buyer from this transaction, what is the price at which the good is exchanged between the two parties?

Problem 6 (5 points). Define demand. Define supply. In your own words, explain the difference between demand and quantity demanded and supply and quantity supplied.

Problem 7 (10 points). The generalized demand function for good X is

Qd = 1,500 – 4P + 5A + 10M +3PY

  1. Are goods X and good Y substitutes or complements? How do you know?

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  2. .5in;="" left="" list="" lfo1;'="" l3="" .5in="" 0in="">Is good X a normal good or an inferior good? How do you know?

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  3. .5in;="" left="" list="" lfo1;'="" l3="" .5in="" 0in="">What is the demand function when A (advertising) = $20,000,M = $15,000, PY = $500?

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    .5in;'="" 0pt;="" 0in;="" normal;="" 12pt;="" roman","serif";="" new="" "times="" 0);="" 0,="" rgb(0,="" .5in="">Problem 8 (15 points). Consider the following demand and supply functions:

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    .5in;'="" 0pt;="" 0in;="" normal;="" 12pt;="" roman","serif";="" new="" "times="" 0);="" 0,="" rgb(0,="" .5in="" justify;="">Demand: Qd = 3,000 – 10P

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    .5in;'="" 0pt;="" 0in;="" normal;="" 12pt;="" roman","serif";="" new="" "times="" 0);="" 0,="" rgb(0,="" .5in="" justify;="">Supply: Qs = -1000 + 10P

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  1. Solve for the equilibrium price (Po) and the equilibrium quantity (Qo).

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    .5in;'="" 0pt;="" 0in;="" normal;="" 12pt;="" roman","serif";="" new="" "times="" 0);="" 0,="" rgb(0,="" .5in="" justify;="">b. Find the inverse demand function and the inverse supply function.

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    .5in;'="" 0pt;="" 0in;="" normal;="" 12pt;="" roman","serif";="" new="" "times="" 0);="" 0,="" rgb(0,="" .5in="" justify;="">c. Sketch this market.

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    .5in;'="" 0pt;="" 0in;="" normal;="" 12pt;="" roman","serif";="" new="" "times="" 0);="" 0,="" rgb(0,="" .5in="" justify;="">Problem 9 (20 points). Consider the following demand and supply functions for good X:

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    .5in;'="" 0pt;="" 0in;="" normal;="" 12pt;="" roman","serif";="" new="" "times="" 0);="" 0,="" rgb(0,="" .5in="" justify;="">Demand: Qd = 800 – 55P

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    .5in;'="" 0pt;="" 0in;="" normal;="" 12pt;="" roman","serif";="" new="" "times="" 0);="" 0,="" rgb(0,="" .5in="" justify;="">Supply: Qs= 45P - 200

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  1. Find the inverse demand function and the inverse supply function.

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  2. .5in;="" left="" list="" .5in="" 0in="" lfo3;'="" l2="">Find the equilibrium price and quantity in this market.

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  3. .5in;="" left="" list="" .5in="" 0in="" lfo3;'="" l2="">Sketch the market for good X.

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    .5in;'="" 0pt;="" 0in;="" normal;="" 12pt;="" roman","serif";="" new="" "times="" 0);="" 0,="" rgb(0,="" .5in="" justify;="">Problem 10 (15 points). Consider the following demand and supply functions for good X:

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    .5in;'="" 0pt;="" 0in;="" normal;="" 12pt;="" roman","serif";="" new="" "times="" 0);="" 0,="" rgb(0,="" .5in="" justify;="">Demand: Qd = 800 – 55P

    .5in;'="" 0pt;="" 0in;="" normal;="" 12pt;="" roman","serif";="" new="" "times="" 0);="" 0,="" rgb(0,="" .5in="" justify;="">

    .5in;'="" 0pt;="" 0in;="" normal;="" 12pt;="" roman","serif";="" new="" "times="" 0);="" 0,="" rgb(0,="" .5in="" justify;="">Supply: Qs= 45P - 200

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    .5in;'="" 0pt;="" 0in;="" normal;="" roman","serif";="" new="" "times="" 0);="" 0,="" rgb(0,="" .5in="">a. Find the equilibrium price and quantity in this market.

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    .5in;'="" 0pt;="" 0in;="" normal;="" 12pt;="" roman","serif";="" new="" "times="" 0);="" 0,="" rgb(0,="" .5in="">b. Suppose there are complaints that the equilibrium price in this market is unfair and Congress sets a price control of $10. Is this a prices floor or a price ceiling?

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    .5in;'="" 0pt;="" 0in;="" normal;="" 12pt;="" roman","serif";="" new="" "times="" 0);="" 0,="" rgb(0,="" .5in="">c. Explain what the effect of this price control would be on the market.

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    .5in;'="" 0pt;="" 0in;="" normal;="" 12pt;="" roman","serif";="" new="" "times="" 0);="" 0,="" rgb(0,="" .5in="">d. Who most likely would be complaining about the equilibrium price, consumers or firms? Was the equilibrium price considered too low or too high?

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    .5in;'="" 0pt;="" 0in;="" normal;="" 12pt;="" roman","serif";="" new="" "times="" 0);="" 0,="" rgb(0,="" .5in="">e. What did Congress hope to achieve by setting this price control?

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    .5in;'="" 0pt;="" 0in;="" normal;="" 12pt;="" roman","serif";="" new="" "times="" 0);="" 0,="" rgb(0,="" .5in="">f. Who in the market would benefit from this price control? Who would be worse off?

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Managerial Economics Homework Assignment 2015 Solution

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