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__MPME 7113 MANAGERIAL ECONOMICS__

__ASSIGNMENT II__

__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.**

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**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 (E_{1}=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;

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**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 = -0.005L^{2}+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. **

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**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?**

60

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