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Managerial Economics Final Exam 2013 (summer) CHAPTER 5 -10

Question # 00034428
Subject: Economics
Due on: 12/03/2014
Posted On: 12/03/2014 12:44 AM

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1. The following table shows data for a simple production function.
Capital costs this firm $ 15 per unit, and labor costs $9 per worker.
K
L
(Capital) (Labor) TP
20
0
20
20
20
20
20
20
20
20
20

1
2
3
4
5
6
7
8
9

0 TFC
5
15
30
50
75
85
90
92
92

TVC

TC

AFC

AVC

ATC

MC

a. From the information on the table, calculate total fixed cost (TFC), total variable cost (TVC),
total cost (TC), average fixed cost (AFC), average variable cost (AVC), average total cost (ATC),
and marginal cost (MC).
b. At what point is average total cost minimized? At what point is average variable cost
minimized?
2. A monopolist sells in two geographically divided markets, the east and the West. Marginal cost
is constant at $100 in both markets. Demands and marginal revenue in each market are as
follows:
Qe= 1000-2Pe
MRe= 450 Qe
Qw= 700-Pw
MRw= 700- 2Qw
a. Find the profit maximizing price and quantity in each market.
b. In which market is demand more elastic?
c. If the marginal cost goes up in west to $110, how will Pw and Qw will change in west?
3. Using the graph below calculate the profit:
a. If the firm is making economic profit what will be the price and the quantity?
b. If the firm is making zero economic profit, what will be the price and the quantity?
c. If the firm is making negative economic profit, what will be the price and the quantity?

4. Last week, Wally's Burgers, Inc. reduced the average price on the 1/2-pound Papa burger by
1%. In response, sales jumped by 4%.
A. Calculate the point price elasticity of demand for Papa burgers.
B. Calculate the optimal price for Papa burgers if marginal cost is $1 per unit.
5. Van Farms Inc. is a small grower of watermelons. Van Farms estimates that watermelon output
would increase by 1,200 per month with an additional 1,000 gallons of water per month provided
by an irrigation system. Alternatively, watermelon output could be increased by 500 per month
with an additional 2 tons of fertilizer per month. Assuming the cost of water is $.03 per gallon
and that fertilizer is $5 per ton, is Van Farms using an optimal combination of fertilizer and water
(cost-minimizing combination of inputs)? Why or why not? Please explain what will be the best
thing for the Van Farms Inc. to do, increase the water input or the fertilizer in order to be at (cost
minimizing combination of inputs).
6. The following matrix shows strategies and payoffs for two firms that must decide how to
price.
Firm 2

Price high

Firm 1
Price high

400, 400

Price low

-50, 700

Price low

700, -50

100, 100

a. Does either firm have a dominant strategy and if so, what is it?
b. What is the Nash equilibrium, of this game?
c. Why would this be called a prisoners dilemma game?
Qualitative Analysis (40%)
7. Compare and contrast differences and similarities between perfect market, oligopoly,
monopoly and a monopolistic market. Also, discuss in which market structure you believe that
your company/organization for your Wedding and Events Planner and Organizer company
project will fall and state the reasons why.
8. Assume two firms are currently competing in a market. If one of the two firms wants to try to
eliminate the other firm as a competitor, should it undertake a strategy of limit pricing or
predatory pricing? Why? In addition, describe the conditions under which the strategy you have
selected will be most successful
9. How many types of price discrimination do you know and which one might be appropriate for
your Wedding and Events Planner company project?
10. Why would your Wedding and Events Planner Company would not want to compete against
a monopolistic or oligopolistic company?

Tags summer chapter 0 exam economics final managerial cost price average market firm marginal profit calculate total farms fertilizer events wedding planner company point strategy firms papa economic making combination month water variable costs labor burgers fixed shows

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Managerial Economics Final Exam 2013 (summer) CHAPTER 5 -10

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Preview: or xxxxxxxx an xxxxxxxxx structure This xx totally opposite xx monopolistic xxxxxxxxxxx x unique xxxxxxx is the xxxxxxxxxxxxxxx among firms, xxxxx creates xx xxxxxxxxx role xxx behavioural assumptions xxxxx the rival xxxx This xxxxxxxxxx xx the xxxxx of all xxxxxxxxx models that xxxx in xxx xxxxxxx for xxxxxxxxxxx prices Each xxxxxxxx decisions’ affect xxx other xxxxx xx it xx in the xxxxxxxx of all xx collude xxx xxxx joint xxxxxxxxxx but the xxx rules this xxx Hence x xxxx has xx consider the xxxxxxxxx reactions to xxx own xxxxxxxxx xxxxxx executing xxx decision MONOPOLY: xxxxxxxx is the xxxx seller xx xxx market xxxxx are no xxxxx substitutes of xxx good xxxxxxxxxx xx when xxxxxx rise the xxxxxxxxx have limited xxxxxxx Each xxxxxxxxxx xxxxx a xxxxxxxx sloping demand xxxxxxxxxx implies that xx can xxx x price xxxx it wants xx sell at—price xxxxx The xxxxxxxx xxxx will xx actually sold xxxxxxx on the xxxxxx function xxxxxxx xxxxxxxxxxxxxxxx coligopolyMonopolyProbability xx profitsLowestNormal profitsAbnormal xxxxxxx highestSocial desirabilitymaximumdesirableLess xxxxxxxxx LeastClearly xxx xxxx like xx operate in x monopoly as xx gives xxxxxxx xxxxxxx This xx also possible xxxxxxx the company xxxxxx tailor xxxx xxxxxxxxx to x wedding plan xxxx are unrivalled xx the xxxxxxxx xxx personliasation xx per requirements xxxxx it a xxxxxxxx as xx xxxxx firm xxx provide the xxxx ideas 8 xxxxxx two xxxxx xxx currently xxxxxxxxx in a xxxxxx If one xx the xxx xxxxx wants xx try to xxxxxxxxx the other xxxx as x xxxxxxxxxxx should xx undertake a xxxxxxxx of limit xxxxxxx or xxxxxxxxx xxxxxxxx Why? xx addition, describe xxx conditions under xxxxx the xxxxxxxx xxx have xxxxxxxx will be xxxx successful Limit xxxxxxx is x xxxxxxxx where xxxxx is lowered xx that new xxxxxxxx are xxx xxxx to xxxxxxxxxxx lower price xxx this discourages xxxxx entry xxx xxxxxx price xxxx a monopolist xxx offer without xxxxxx a xxxx xx the xxxxx of the xxxxxxx AC it xxxxx In xxxx xxxxx price xxxx not be xxxxxxx and the xxxx can xxxxx xxxxxx capacity xx show its xxxxxxxxxxxxx to lower xxxxx to xxx xxxxxxx AC xxxxx Predator pricing xx also a xxxxxxx strategy xxxxx xxxxxx are xxxxxxx to discourage xxx entrants In xxxx cases xxxxxx xxx even.....
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