04 Jun Question Managerial Economics Questions for Fina
Question
Managerial Economics Questions for Final Exam 2013 (summer) 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
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?
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