# Managerial Economics 510 Final Exam

Jul 14th, 2016
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Question No. 1a.Q = 5000 - .514000 + .17500 + .216000 = 1950At this point of tuition Elasticity of demand:ED == -3.6b.We change the demand function to accommodate for the newly given parameter values:Q = 7500 - .414000 + .157500 + .216000 = 6225 students will enrol next year.The new demand elasticity is ED == -0.9To determine whether the advertising campaign is cost effective, you need to determine, whetherthe increased revenues from the advertising campaign exceed its costs.Revenues are given by R = (6225-1950)\$14000 = 59,850,000 > 4,500,000So campaign is a cost effective one.Question No. 2a.b. Firm K has a dominant strategy in Strategy S. The Nash equilibrium is where Firm K doesStrategy S and Firm L does Strategy Q, with allocation (\$7.5 mill, \$14 mill).Question No. 3a.From my perspective john has to sell the house at a price of \$75000 because his marginal costis \$52000 which will lead to a contribution of \$23000 and which is good for John.Chat convQuestion No. 4Question 4 Production should be allocated so the marginal profitability of yard furniture equalsthat of knick knacks. Why? Because if the profitability of one is greater than the other more ofthe former and less of the latter should be produced. y' (derivative)= 2-.002Ty marginalprofiatbility is 100(2-.002Ty) K'(derivative)= 20-.02Tk marginal profitability is 25(20-.02Tk) Sowe have 100(2-.002Ty)= 25(20-.02Tk) 200-.2Ty= 500-.5Tk .5Tk-.2Ty= 300 Tk+Ty= 1300(cons

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