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Managerial Economics Questions for Final Exam CHAPTER 5 -10

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Subject: Economics
Due on: 05/13/2015
Posted On: 05/12/2015 12:53 AM

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Managerial Economics Questions for Final Exam CHAPTER 5 -10

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

(Capital)

L

(Labor)

TP

TFC

TVC

TC

AFC

AVC

ATC

MC

20

0

0

20

1

5

20

2

15

20

3

30

20

4

50

20

5

75

20

6

85

20

7

90

20

8

92

20

9

92

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?

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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

Firm 1

Pricehigh

Pricelow

Pricehigh

400, 400

-50, 700

Pricelow

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 prisoner’s 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 companyproject 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 companyproject?

10. Why would your Wedding and Events Planner Companywould not want to compete against a monopolistic or oligopolistic company?

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Managerial Economics Questions for Final Exam CHAPTER 5 -10

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