...Economics 101 Summer 2012 Answers to Homework #5 Due 6/20/12 Directions: The homework will be collected in a box before the lecture. Please place your name, TA name and section number on top of the homework (legibly). Make sure you write your name as it appears on your ID so that you can receive the correct grade. Late homework will not be accepted so make plans ahead of time. Please show your work. Good luck! Please realize that you are essentially creating “your brand” when you submit this homework. Do you want your homework to convey that you are competent, careful, professional? Or, do you want to convey the image that you are careless, sloppy, and less than professional. For the rest of your life you will be creating your brand: please think about what you are saying about yourself when you do any work for someone else! 1. Consider a monopolist where the market demand curve for the produce is given by P = 520 – 2Q. This monopolist has marginal costs that can be expressed as MC = 100 + 2Q and total costs that can be expressed as TC = 100Q + Q2 + 50. a. Given the above information, what is this monopolist’s profit maximizing price and output if it charges a single price? Answer: MR = 520 – 4Q MC = 100 + 2Q 520 – 4Q = 100 + 2Q Q = 70 units of output P = 520 – 2Q = 520 – 2(70) = $380 per unit of output b. Given the above information, calculate this single price monopolist’s profit. Answer: Profit = TR – TC TR = P*Q = ($380 per unit)(70 units) =...
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...Major Assignment 1) a) Demand Function: Quantity Demanded (Qd) = a + b* Price (P) Supply Function: Quantity Supplied (Qs) = a + b* Price (P) Where: a = constant b = the change in quantity as a result to the change in price. Demand Function: Quantity Demanded (Qd) = a + b* Price (P) b = (420 – 350) / (20 – 25) = 70 / -5 = -14 Using: P = 25, Qd = 350 350 = a – 14 * (25) 350 = a – 350 Therefore a = 700 and the demand function would be: Qd = 700 – 14 * P Supply Function: Quantity Supplied (Qs) = a + b* Price (P) b = (350 – 420) / (20 – 25) = -70 / -5 = 14 Using: P = 25, Qs = 420 420 = a + 14 * (25) 420 = a + 350 420 – 350 = a Therefore a = 70 and the demand function would be: Qs = 70 + 14 * P b) Graph Showing Equilibrium Price e = Equilibrium point EquilibriumhasesaeEquilibrium point e Figure 1 Note: From the graph above the equilibrium price is approximately $22.50 c) Economically speaking, the goal of a company is to maximize profit, and maximizing profit is not usually the same thing as maximizing revenue. Therefore, while it may be appealing to think about the relationship between price and revenue, especially since the concept of elasticity makes it easy to do so, it's only a starting point for examining whether a price increase or decrease is a good idea. If a decrease in price is justified from a revenue perspective, one must think about the costs of producing the extra output in order to determine whether the price...
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...1) Total Revenue | $120,000 | | Salary Forgone | $50,000 | | Employee’s wages | 40,000 | | Loss on Rent | $10,000 | per year | Material Cost | 15,000 | | Lost return on savings (5%) | $ 1,000 | per year | Rental of Equipment | 5,000 | | Savings invested in business | $20,000 | | a) | | | | | | | Economic Costs | $121,000 | | | | | Accounting Costs | 60,000 | | | | | b) | | | | | | | Accounting Profit | $60,000 | | | | | C) | | | | | | | Economic Profit | ($1,000) | | | | | d) | | | | | | | No, because she is forgoing the rent income she would have been earning before she started her own business | | 2) | Fixed Cost | Marginal Cost | Variable Costs | | | Small Plant | $10,000 | $2.00 | $12,000 | | | | Medium Plant | $15,000 | $1.40 | $12,600 | | | | Large Plant | $25,000 | $0.50 | $9,000 | | | | a) | | | | | | | Average Cost of Production | | | | Clock Radios | 6000 | 9000 | 18000 | | | | Small Plant | $3.67 | $3.11 | $2.56 | | | | Medium Plant | $3.90 | $3.07 | $2.23 | | | | Large Plant | $4.67 | $3.28 | $1.89 | | | | b) | | | | | | | 6000 Units - Small Plant | | | | | | | 9000 Units - Medium Plant | | | | | | | 18000 Unit - Large Plant | | | | | | | c) | | | | | | | In the short run the average total cost of producing 18000 units at $2.23 a unit in a medium plant is $40,140...
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...545 – 10388 Business Economics Microeconomics Analysis September 21, 2014 Introduction The demand for physicians and health care services in the United States is determine by the quantity the public is willing to pay for the lowest price in order to benefit from their services. Several factors affect the demand for physicians. The needs and size of the population, economic hardships and the high prices they are faced to pay. The technological constrains related to the practicality of the demands from consumers. The last demand of health care physicians depends on the relation between the demand and supply current conditions in the market of service. Past projections show that the continuous shortage of supply and demand for physicians will continue to influence the policies and programs related to the health care systems. Because completing medical school and creating a new structure for physicians is time consuming, the USA needs to predict the needs of the physicians in advance. The shortage of physicians was the leading cause for the creation of new medical school in the country. . The important factors which will estimate the future demand of the physicians depends on 800,000 present physicians, millions of nurses and other health care workers, about 300 million patients, hundreds of health plans, thousands of health care facilities, thousands of employers in the industry, thousands of legislators and policy makers, and other factors such economic conditions, technology...
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...ECO 550 Complete Class Click Link Below To Buy: http://hwcampus.com/shop/eco-550/eco-550-complete-class/ Or Visit www.hwcampus.com ECO 550 Complete Class ECO 550 Week 3 Assignment 1 – Demand Estimation Imagine that you work for the maker of a leading brand of low-calorie microwavable food that estimates the following demand equation for its product using data from 26 supermarkets around the country for the month of April. For a refresher on independent and dependent variables, please go to Sophia’s Website and review the Independent and Dependent Variables tutorial, located at http://www.sophia.org/tutorials/independentand- dependent-variables–3. Note: Your professor will provide you with the equation and data necessary for you to complete this assignment. You will find this information attached to Assignment 1 within the course shell. Write a four to six (4-6) page paper in which you: 1. Compute the elasticities for each independent variable. Note: Write down all of your calculations. 2. Determine the implications for each of the computed elasticities for the business in terms of shortterm and long-term pricing strategies. Provide a rationale in which you cite your results. 3. Recommend whether you believe that this firm should or should not cut its price to increase its market share. Provide support for your recommendation. 4. Assume that all the factors affecting demand in this model remain the same, but that the price has changed. Further...
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...ECO 550 Complete Class Click Link Below To Buy: http://hwcampus.com/shop/eco-550/eco-550-complete-class/ Or Visit www.hwcampus.com ECO 550 Complete Class ECO 550 Week 3 Assignment 1 – Demand Estimation Imagine that you work for the maker of a leading brand of low-calorie microwavable food that estimates the following demand equation for its product using data from 26 supermarkets around the country for the month of April. For a refresher on independent and dependent variables, please go to Sophia’s Website and review the Independent and Dependent Variables tutorial, located at http://www.sophia.org/tutorials/independentand- dependent-variables–3. Note: Your professor will provide you with the equation and data necessary for you to complete this assignment. You will find this information attached to Assignment 1 within the course shell. Write a four to six (4-6) page paper in which you: 1. Compute the elasticities for each independent variable. Note: Write down all of your calculations. 2. Determine the implications for each of the computed elasticities for the business in terms of shortterm and long-term pricing strategies. Provide a rationale in which you cite your results. 3. Recommend whether you believe that this firm should or should not cut its price to increase its market share. Provide support for your recommendation. 4. Assume that all the factors affecting demand in this model remain the same, but that the price has changed. Further...
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...Two important examples of such industries are telecommunications services and information services. In each of these cases the relevant technologies involve high fixed costs, significant joint costs and low, or even zero, marginal costs. Setting prices equal to marginal cost will generally not recoup sufficient revenue to cover the fixed costs and the standard economic recommendation of "price at marginal cost" is not economically viable. Some other mechanism for achieving efficient allocation of resources must be found. The outcome of this investigation is that (i) efficient pricing in such environments will typically involve prices that differ across consumers and type of service; (ii) producers will want to engage in product and service differentiation in order for this differential pricing to be feasible; and, (iii)differential pricing will arise naturally as a result of profit seeking by firms. It follows that differential pricing can generally be expected to contribute to economic efficiency Thus differential pricing is “the practice of selling the same product to different customers at different prices even though the cost of sale is the same to each of them. More precisely, it is selling at a price or prices such that the ratio of price to marginal costs is different in different sales” TYPES OF DIFFERENTIAL PRICING * First-degree price discrimination means that the producer sells different units of output for different prices and these prices may differ from...
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...Market Structure Eva Gebhards Professor Dr. Paul Prentice Applied Managerial Economics ECON616 Colorado Technical University December 4, 2014 In my first paper I wrote about gasoline. The oil market/industry has a major effect on gas prices; therefore I chose to write about this industry in my second paper. The oil industry is large and one of the fastest-growing manufacturing industries. 1. Which of the 4 classes of "Market Structure" comes closest to describing the current state of the market? The structure of the world oil market is set to be an Oligopoly industry as the oil market is dominated by few large suppliers. For an industry to be classified as an oligopolistic industry it has to have a small number of relatively large firms that are mutually independent, and which hold a very large amount of output. Also, an oligopolistic industry has differentiated or standardized products, and non-price competition is very important among firms selling differentiated products. In addition the barriers to entry are very difficult, because not every country can produce oil, and therefore cannot enter the oil market, and take advantage of the abnormal profit. The profit of firms is determined exactly in the same manner as in other forms of markets: from optimum quantity where marginal revenue equals marginal cost, price is determined on the demand curve and unit cost on the average total cost curve. However, this determination may be affected by the kinked demand curve...
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...Question 1 [8 points] a) For their thanksgiving holidays Americans eat turkey. This results in a spike in demand for turkeys in the weeks before Thanksgiving. Despite this, the price of frozen turkeys usually falls in the weeks leading up to Thanksgiving. Explain why using the economics of demand and supply. [3 points] Answer: The merchants predicted the increase in demand during thanksgiving and stock up more frozen turkey supplies beforehand. Therefore, the supply of frozen turkey increases far more than demand, leading to a surplus of frozen turkey. The surplus causes the fall in frozen turkey price in the weeks leading up to Thanksgiving. b) In contrast to frozen turkeys, the price of fresh free-range turkeys normally increases in the weeks leading up to Thanksgiving. Using demand and supply analysis, explain why this might be the case? [3 points] Answer: Unlike frozen turkey, the fresh free-range turkeys cannot be stock up too for long beforehand, otherwise, the quality will be lowered. Compared with the strike increase in demand, there are not enough supplies of fresh free-range turkey. Therefore, the shortage of fresh free-range turkeys leads to the increase in the price of fresh free-range turkey. c) The cross elasticity of demand between the price of fresh turkeys and demand for frozen Turkeys is 0.23. What does this figure tell you about the relationship between the two different types of turkey? [2 points] Answer: this figure shows these two demands...
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...A Dynamic Oligopoly Game of the US Airline Industry: Estimation and Policy Experiments Victor Aguirregabiria∗ University of Toronto Chun-Yu Ho∗ Boston University This version: November 19, 2007 PRELIMINARY AND INCOMPLETE VERSION Abstract This paper estimates the contribution of demand, cost and strategic factors to explain why most companies in the US airline industry operate using a hub-spoke network. We postulate and estimate a dynamic oligopoly model where airline companies decide, every quarter, which routes (directional city-pairs) to operate, the type of product (direct flight vs. stop-flight), and the fare of each route-product. The model incorporates three factors which may contribute to the profitability of hub-spoke networks. First, consumers may value the scale of operation of an airline in the origin and destination airports (e.g., more convenient checking-in and landing facilities). Second, operating costs and entry costs may depend on the airline’s network because economies of density and scale. And third, a hub-spoke network may be an strategy to deter the entry of non hub-spoke carriers in some routes. We estimate our dynamic oligopoly model using panel data from the Airline Origin and Destination Survey with information on quantities, prices, and entry and exit decisions for every airline company over more than two thousand city-pair markets and several years. Demand and variable cost parameters are estimated using demand equations and Nash-Bertrand equilibrium...
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...Marginal Analysis Task 1 Before a company can know the maximum profit to obtain for their industry, they must review and consider many factors. Some of the concepts that are analyzed when making business product decisions are Marginal revenue, marginal cost, profit-maximizing and total cost. Marginal revenue is the total revenue charged when one more unit of output is produced. When you multiply the unit price by the quantity the company can sell this determines the total revenue earned. When the first unit is purchased and equals the marginal revenue this increases the total revenue. The marginal revenue will stay at the same original cost when the second unit is produced but the total revenue will increase. The second unit when sold will make marginal revenue stay the same by the total revenue will double in cost. Marginal revenue is equal to the change in total revenue over the change in quantity when the change of quantity is equal to one unit. The marginal revenue must be greater than zero when selling another unit increases total revenue. If the marginal revenue is less than zero then the sale of another unit will take away from the total revenue. This relationship then exists because the slope of the total revenue curve is measured by marginal revenue. The extra cost to produce one additional unit of output is called Marginal cost. To find Marginal cost you take the total cost and divide it with the production details of that unit. The total cost will include fixed...
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...BENEDICTINE COLLEGE Managerial Economics Instructor: Shu Yan Fei Assignment One Student Name: Peng TangBin October 9, 2009 The demand curve for product X is given as Q = 2000 – 20P. a. How many units will be sold at $ 10 ? b. At what price would 2,000 units be sold ? 0 units ? 1,500? c. Write equations for total revenue and marginal revenue (in term of Q). d. What will be the total revenue at a price of $70? What will be the marginal revenue ? e. What is the point elasticity at price of $70 ? f. If price were to decrease to $60, what would total revenue, marginal revenue and point elasticity be now? g. At what price would elasticity be unitary? a. when P = $10, Q = 2000 – 20p. Q = 2000 – 20*10 =2000 – 200 = 1,800 b. Q = 2000 – 20P 1. when Q = 2,000 , P= [pic][pic]= 100 – 0.05Q = 100 – 0.05*2,000 = 100 – 100 = 0 2. when Q= 0 , P= [pic][pic]= 100 – 0.05Q = 100 – 0.05*0 = 100 3. when Q = 1,500 , P= [pic][pic]= 100 – 0.05Q = 100 – 0.05*1,500 = 100 – 75 = 25 c. Q = 2000 – 20P P = [pic][pic]= 100 – 0.05Q TR = P*Q = ( 100 – 0.05Q )* Q = 100Q – 0.05Q[pic] MR = [pic] = 100 – 2*0.05*Q = 100 – 0.1Q Where TR = total revenue, MR = mariginal revenue Demand curve: P = a – bQ Total revenue: PQ = aQ - bQ[pic] Marginal revenue: MR = [pic] = a – 2bQ d. when P = $70, Q = 2,000 – 20P = 2,000 – 20*70 =2,000 – 1,400 = 600 TR = 100Q – 0.05*Q[pic] = 100 *600– 0.05*600[pic]=60...
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...assemble auios in the United States. For Toyota, the venture was a first attempt to locate production in America. General Motors viewed the venture as a means of learning how to produce low-cost, high quality, small vehicles. Facing an onslaught of anti-union Japanese firms, the United Auto Workers had to demonstrate that unions would not be an impediment to Japanese production in the United States. By 1986 the venture was termed a success. This paper considers the welfare effects of international joint ventures among compettng manufacturers, as applied to the U.S. auto industry. Darwin Wassink is Professor of Economics at the University of WisconsinEau Claire. Previously he served as an economist in Pakistan and Saudi Arabia. Robert Carbaugh is Associate Professor of Economics at Central Washington University. He is author of International Economics and coauthor of The International Monetary System. ISSN: 088i~390H. THE iNTERNATlONAL TRADEJOVRNAL,Volu>ne I No. I. hall 1986 47 48 THE INTERNATIONAL TRADE JOURNAL The American auto industry is undergoing an evolution in which the "all American car" is rapidly becoming a thing of the past. Although American automakers will continue to develop and build their own mid-size and large autos in the United States, they are turning over increasing amounts of small-car production to foreign competitors, mainly the Japanese. This process intensifies the demands for protectionism among American auto workers...
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...professional adviser as necessary. Kaplan Publishing Limited and all other Kaplan group companies expressly disclaim all liability to any person in respect of any losses or other claims, whether direct, indirect, incidental, consequential or otherwise arising in relation to the use of such materials. All rights reserved. No part of this examination may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without prior permission from Kaplan Publishing. 2 KAPLAN PUBLISHING REVISION MOCK ANSWERS 1 B – FALSE The definition given is that of a flexed budget. 2 3 D C Economic order quantity = 2C OD CH 2 x $10 × 80,000 units 0.90 1,333 units Economic order quantity Economic order quantity = = 4 5 B D (65,800 + 82,600 + 60,100)/3 = 69,500 82,600 – 69,500 = 13,100 units 6 C High level = number of units: 48 Low level = number of units: 23 Difference = 25 units Therefore variable cost per unit = $1,900 ÷ 25 units = $76 Fixed costs = $7100 – ($76 × 48 units) = $3,452 Total cost $7,100 Total cost $5, 200 Difference in costs $1,900 7 8 9 10 11 D A A B C KAPLAN PUBLISHING 3 ACCA F2:...
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...Average Collection Period | $3,240,222/($43,803,000/365) | | 27.00 | days | | Average payment Period | $1,826,070/[(0.57*$43,803,000)/365] | | 26.695 | days | | | | | | | | | BB's Cash Conversion Cycle = | AAI + ACP - APP | | | | | | BB's Cash Conversion Cycle = | 12.31 + 27 - 26.695 | | | | | | BB's Cash Conversion Cycle = | 12.615 | days | | | | | | | | | | | | | | | | | | 2) BB currently uses 3,000 ingots of aluminum each year to manufacure bracelet blanks. The order cost (including shipping) is $5,000 per order, and carrying costs are $75 per unit per year. Determine the economic order quantity, the amount of safety stock, and the reorder point for aluminum ingots assuming there is a 1-week lead time and the firm would like a safety stock of 3%. | | | | | | | | | | Economic Order Quantity = | √2 x current use x order cost / carry cost per unit per year = | | | | | √2 x 3,000 x 5,000 / 75 = | 632.46 | per order | | | | | | | | | | Ingots of aluminum per day = | 3000/365 = | 8.22 | ingots | | | | Reorder point = | 8.22*7 = | 57.40 | ingots | 147.40 | | | 3% safety stock = | 0.03*3000 = | 90 | ingots | | | | BB should reorder when they have 147.40 ingots remaining in stock in order to maintain their safety stock requirements. | | | | | | | | | | | | | | |...
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