Managerial Economics Middleton

User Generated

enwb

Economics

Description

Problem Set #1

To receive full credit, you must show all of your work. You may work with others in the class on this assignment, but the final write up MUST BE YOUR OWN. If you do work anyone else, please list them on your homework assignment to acknowledge their assistance

Unformatted Attachment Preview

Managerial Economics Middleton Problem Set #1 To receive full credit, you must show all of your work. You may work with others in the class on this assignment, but the final write up MUST BE YOUR OWN. If you do work anyone else, please list them on your homework assignment to acknowledge their assistance. 1) Suppose the total benefit derived from a given decision, Q, is B(Q) = 29Q - Q2 and the corresponding cost is C(Q) = 2 + 2 Q2. a. Find the marginal benefit and the marginal cost of Q b. What is the total benefit when Q = 4? Q=12? c. What is the marginal benefit when Q=4? Q=12? d. What level of Q maximizes total benefits? e. What is the total cost when Q = 4? Q=12? f. What is the marginal cost when Q=4? Q=12? g. What level of Q minimizes total cost? h. What level of Q maximizes net benefits? 2) Ollivander’s wand shop is being sold for 1.2 million. The company’s income statement indicates profits are currently $50,000, which have not yet been paid out in dividends. Assuming that the company remains profitable indefinitely and that the interest rate remains at 8 percent, at what constant rate does the new buyer believe profits will growth? Does this sound reasonable? Explain. 3) You’ve been asked to put together a pro forma statement of your company’s value under several possible growth scenarios and the assumption that the company’s many divisions will remain a single entity forever. The projections are to be based on the firm’s current profits of 4.5 billion (which have not yet been paid out to shareholders) and the average interest rate over the past 20 years (5 percent). a. Profits grow at an annual rate of 10 percent. (Hint: this one is tricky). b. Profits grow at an annual rate of 4 percent. c. Profits grow at an annual rate of 0 percent. d. Profits decline at an annual rate of 2 percent. 4) You are the manager of Local Electronics Shop (LES), a small brick and mortar retail camera and electronics store. One of your employees proposed a new online strategy whereby LES lists its products at PriceSearch.com – a price comparison website that allows consumers to view the prices of dozens of retailers selling the same items. Would you expect this strategy to enable LES to achieve sustainable economic profits? Explain. 5) Demand for omelets (O) is given by: QOd = 1,100 – 2PO+3PG - .5PW + .1M. Research shows that the price of waffles (W) and grits (G) are given by PW = $7.00 and PG=$4.50 while the average breakfast consumers’ income (M) is $30,000. a. Are grits and waffles substitutes or complements for omelets?? How do you know? b. Are omelets a normal good or an inferior good? How do you know? c. How many omelets will be purchased when PO = $15? d. Determine the demand function and inverse demand function for omelets. Graph the demand curve for omelets. 6) You are the manager of an organization in America that distributes blood to hospitals in all 50 states and the District of Columbia. A recent report indicates that nearly 50 Americans contract HIV each year through blood transfusions. Although every pint of blood donated in the United States undergoes a battery of nine different tests, existing screening methods can detect only the antibodies produced by the body’s immune system – not foreign agents in the blood. Since it takes weeks or even months for these antibodies to build up in the blood, newly infected HIV donors can pass along the virus through blood that has passed existing screening tests. Happily, researchers have developed a series of new tests aimed at detecting and removing infections from donated blood before it is used in transfusions. The obvious benefit of these tests is the reduced incidence of infection through blood transfusions. The report indicates that the current price of decontaminated blood is $60 per pint. However, if the new screening methods are adopted, the demand and supply for decontaminated blood will change to Qd = 210 - 1.5P; and Qs = 2.5P -150. a. What price do you expect to prevail if the new screening methods are adopted? b. How many units of blood will be used in the United States? c. What is the level of consumer and producer surplus? Illustrate your findings in a graph. d. Suppose the government instituted a price floor of $100. What will be the quantity demanded, quantity supplied, and magnitude of the surplus/shortage? e. Suppose the government instead institutes a price ceiling of $100. What will be the quantity demanded, quantity supplied, and magnitude of the surplus/shortage? 7) Florida, like several other states, has passed a law that prohibits “price gouging” immediately before, during, or after the declaration of a state of emergency. Price gouging is defined as “selling necessary commodities such as food, gas, ice, oil, and lumber at a price that grossly exceeds the average selling price for the 30 days prior to the emergency.” Many consumers attempt to stock up on emergency supplies, such as bottled water, immediately before and after a hurricane or other natural disaster hits the area. Also, many shipments to retailers are interrupted during a natural disaster. Assuming that the law is strictly enforced, what are the economic effects of a price gouging statute? Explain carefully.
Purchase answer to see full attachment
User generated content is uploaded by users for the purposes of learning and should be used following Studypool's honor code & terms of service.

Explanation & Answer

Attached.

Surname1
Students Name:
Instructors Name:
Course Title:
Date:

Solutions to Problem Sets
Question One
a. The marginal benefit and the marginal cost of Q
MB=dB/dQ=29-Q
MC=dC/dQ=4Q
Since MB=MC
29-Q=4Q
29=4Q+Q
29=5Q
Q=29/5
=5.8
MB=29-5.8=23.2
MC= (4*5.8) =23.2
b.

The total benefit when Q = 4 and when Q=12
B (Q) = 29Q - Q2
When Q=4
B=29(4) - 42
Total Benefit =100
When Q=12
B=29(12) - 122
Total Benefit =204

c.

The marginal benefit when Q=4 and when Q=12
When Q=4
MB=29-Q
MB=29-4
=25
When Q=12

Surname 2
MB=29-12
=17
d. The level of Q that maximizes total benefits
Total benefits are maximized when MB=0 or 29-Q=0
-Q=-29
Q=29
e. What is the total cost when Q = 4 and when Q=12
C (Q) = 2 + 2 Q2
When Q=4
C=2+2 (4) 2
=34
When Q=12
C=2+2(12) 2
=290
f.

The marginal cost when Q=4 and when Q=12
MC=4Q
When Q=4
MC=4*4
=16
When Q=12
MC=4*12
=48

g. The level of Q that minimizes to...


Anonymous
I was stuck on this subject and a friend recommended Studypool. I'm so glad I checked it out!

Studypool
4.7
Trustpilot
4.5
Sitejabber
4.4

Related Tags