MPME 7113 MANAGERIAL ECONOMICS
Answer ALL questions
- The demand equation for local fried chicken is given as:
Where Q is quantity and P is price.
- What is the point elasticity coefficient at the price of RM10?
Point price elasticity of demand is the coefficient of P explains the extent of change in Q by a unit change in P.
Thus,to find point estimates, we have:
, at Q units, price is RM10.
Is the demand elastic with respect to price?
No. the demand is inelastic with respect to price because of the negative point price elasticity of PEoD<-1. A slight price change will have a significant quantity response.
- What would happen to quantity demanded if price is raised by 20 percent.
The quantity demanded will reduce in volume by an approximate gap of 50% of the original quantity demanded.
- Determine the price level which total revenue tends to be unchanged if there is a change in price.
The price relation with demand in an elastic market implies that Price elasticity of demand is 1 and total revenue (TR) is at the maximum value.
- The following information shows the price elasticity of demand for beef cross price elasticity between beef and chicken and income elasticity of demand for beef.
- Would you agree that beef can be categorized as an inferior good?
I disagree and conclude that beef is a normal good. Beef cannot be categorized as an inferior good as it has a positive income elasticity of demand (E1=0.82). an inferior good is one with a negative income elasticity in which increase in makes demand fall. For beef, income increase causes a reduction in demand.
- Is it profitable for sellers to increase the price of beef?
Since beef is a normal good with positive income elasticity, increasing income will imply that many consumers will resort to purchase more and preferably luxury goods over necessities.
- If the price of chicken decreased by 15 percent, what is the impact on the demand for beef?
From the cross price elasticity of demand between beef and chicken, the positive (Ebc=2.25) value imply that chicken and beef are substitute goods. In other words, a decrease in chicken price will significantly reduce the demand of beef.
- Beef and chicken are considered as substitute goods. Do you agree?
Yes. Concerning the cross elasticity of demand (positive 2.25), we can conclude that beef and chicken are substitutes.
- The following cubic production function is given while holding constant the firm’s capital inputs:
where Q = units of output
L = units of labour input
- At what level of labour use is the marginal product of labour maximized?
, on differentiation.
At maximum, MP=0, thus, solving the quadratic equation, we have;
L= 40 labour input.
- At what level of labour use is the marginal product of labour equal to the average product of labour?
Average production of labour = -0.005L2+0.3L……(1)
Maginal production labour =………..(2), equating (1) and (2)
0= L(0.3-0.020L), L= 0.3/ 0.02= 15 labour level.
- At what level of labour use is the total output maximized?
At total output level, Q=0, We determine L when the output quantity is at its maximum.
- Consider the following, demand and marginal functions of the firm in each market.
- At what price the firm should charge for the product for each market?
Substituting Q into the price function, we find P= 13.
- In the absent of third degree price discrimination, at what the firm will sell the Product?