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Synergy University, Managerial Economics, Assignment

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The document discusses demand and supply functions, equilibrium price and quantity, price floors and ceilings, elasticity, costs and profits for firms under different market structures. Key points include: - Equilibrium price and quantity are where supply equals demand. Price floors create surpluses while price ceilings create shortages. - Demand for good X is inelastic with respect to own price but elastic with respect to the price of a substitute good Y. Good X is an inferior good. - Maximum profits for a firm occur when marginal revenue equals marginal cost and this determines optimal use of variable inputs. - Under different market structures, above-normal profits will be eliminated in the long-run through entry of new competitors

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Economic and Legal Environment of Business Assignment 1 EMBA Strategy and Leadership Program Instructor: Prof. Saad Kiryakos Student: Mohammed Nasser
Assignment Solve all of the following problems. Your answers should be supported by diagrams and or mathematical equation 1. An economics consultant for ABC corporation recently provide the firm’s marketing manger with this estimate of the demand function for the firm’s product Qx = 12000 - 3px + 4 py - 1M + 2Ax A. How much of good X can do customer purchase? This Question mean what is the available demand in the market for X good can customer purchase it we can solve it by Put the number into the equation ; Qx = 12000 - 3(200) + 4(15) - 1(10000) + 2(2000) Qx = 5460 goods B. Are goods X and Y substitutes or complements? Qx = 12000 - 3px + 4 py - 1M + 2Ax X and Y are substitutes because the relation between Qx and Px are negative this is mean when the price for good X decrease the Quantity for good X will increase, as well as the relation between Qx and Py are positive this is mean when the price for good Y increase the Quantity for good X will increase, it is mean this tow goods are substitutes C. Is good X a normal or an inferior good? Qx = 12000 - 3px + 4 py - 1M + 2Ax Good X is inferior because when the income decrease demand for good X will increase, and the opposite is true when the income increase the demand for good X will decrease.
2. Suppose demand and supply for Tip Top Shirts are given by: Qd = 180 - 2p Qs = 80 + 3p A. What are the equilibrium quantity and price in this market? The equilibrium point are result for demand = supply, so let’s make this equation For price: Qd = Qs 180 - 2p = 80 + 3p P = 20 For Quantity: Qd = 180 - 2(20) = 140 Qs = 80 + 3(20) = 140 Q = 140 B. Determine the quantity demanded, the quantity supplied, and the magnitude of surplus if a price floor of 35$ imposed in this market I must put the price into tow equation to gain the surplus between S and D Qd = 180 - 2(35) = 110 QS = 80 + 3(35) = 185 QS - Qd = 75 surplus in the market S D P Q E 20 140
C. Determine the quantity demanded, the quantity supplied, and the magnitude of the shortage if a price ceiling of 15$ is imposed in this market. I must put the price into tow equation to gain the shortage between S and D Qd = 180 - 2(15) = 150 QS = 80 + 3(15) = 125 Qd - QS = 25 shortage in the market SD P Q 35 110 185 Surplus Price floor SD P Q 15 125 150 Shortage Ceiling price
4. The daily demand for comfort shoes is estimated to be : Qx d = 100 - 3Px + 4Py - 0.01M + 2Ax Answer: Qx = 100 - 3(25) + 4(35) - 0.01(20000) + 2(50) = 65 The Own Price elasticity of demand: EQ Px = - 3 (25/65) = -1.15 Inelastic The Cross Price elasticity of demand: EQ Py = 4(35/65) = 2.15 Elastic The Income elasticity of demand: EQ M = - 0.01(2000/65) = - 3.07 Inelastic 5. A firm’s fixes costs for 0 units of output and its average total cost of product different output levels are summarized in the table Complete the table Q FC VC TC AFC AVC ATC MC - 10,000 - 10,000 - - - - 100 10,000 10,000 20,000 100 100 200 100 200 10,000 15,000 25,000 50 75 125 50 300 10,000 30,000 40,000 33 100 133 150 400 10,000 50,000 60,000 25 125 150 200 500 10,000 90,000 100,000 20 180 200 400 600 10,000 140,000 150,000 17 233 250 500
6. The table K L Q MPx APK APL VMPK 0 20 0 0 0 0 0 1 20 50 50 50 3 100 2 20 150 100 75 8 200 3 20 300 150 100 15 300 4 20 400 100 100 20 200 5 20 450 50 90 23 100 6 20 475 25 79 24 50 7 20 475 0 68 24 0 8 20 450 -25 56 23 -50 9 20 400 -50 44 20 -100 10 20 300 -100 30 15 -200 11 20 150 -150 14 8 -300 A. Identify the fixed and variable inputs? Fixed cost: labor because the firm make contract for 20 hours and the cost for labor are paid in advanced Variable cost: capital because it is rent by hour and when the firm use capital for more time it will pay more. B. What are the firm fixed cost? The fixed cost for this company is: FC = 15 (wages per hour) x 20 hours FC = 300 C. What is the variable cost of producing 475 unit of outputs? The variable cost for producing 475 is VC = 75 (rent per hour) x 7 hours VC = 525 D. How many units of the variable input should be used to maximize profits? The firm’s should use 5 units of capital (variable cost)
E. What are the maximum profit this firm can earn ? K 0 1 2 3 4 5 6 7 8 9 10 11 TR 0 100 300 600 800 900 950 950 900 800 600 300 TC 300 375 450 525 600 675 750 825 900 975 1050 1125 TP -300 -275 -150 75 200 225 200 125 0 -175 -450 -825 As you see in the table the maximum profit for this firm is 225 9. A monopoly is considering selling several units of a homogeneous product.... A. Determine the optimal number of units to put in a package Qd = 50 - 0.25p P = 200 - Qd/0.25 MR = P + ((dP / dQ) x Q) MR = 200 - 2Qd/0.25 And for monopoly the MR=MC MC = MR 120 = 200Q - 2Qd/0.25 Q = 10 number of unit in a package B. How much should the firm charge for this package ? Qd = 50 - 0.25p 10 = 50 - 0.25p P = 160 price for package 10. Should it Do it ? Explain In my opinion the monopolist should do limit price and earn only 8 million $, because if do this strategy that mean no one can inter the market for long time In reference to case when monopolist earn 20 million $ after another firm inters the market, this is will stay for short time only, and new firms will inters the market because it is open market without barriers and our profit will decrease to zero maybe or even lost But when limit the price and earn only 8 million$ it will prevent all another firms to inter the market for long time.
12. As the manager of monopoly, Mustafa face potential government regulation A. Determine the monopoly price and output We have Q = 25 - P and C (Q) =5Q MC = Q(dP) = 25P - 1/2 P2 MR = C (dQ) = 5/2 Q2 13. Based on the best available estimates, the market elasticity of demand for ZERA Tech’s product is -1.50. The marginal cost of producing the product is constant at 75 $, while average total cost at current production levels is 200 $ Determine optimal per unit price if ZERA Tech is a monopolist: P = ( Ed / 1 + Ed ) x MC = ( -1.5 / 1 - 1.5 ) x 75 = 225 15. Assume that the firms in the short run are earning above-normal profits. Explain what will happen to these profits in the long run for the following markets. A. Pure Monopoly In the case of pure monopoly the firm must decrease the profits till zero profit to prevent inters new firms in this open markets B. Oligopoly In the case of oligopoly the firm must decrease the profit to stay in the market and the firms must decrease the profit till MC = MR C. Monopolistic Competition in case of monopolistic competition there are no barriers to enter the market this implies that the new firms will enter the market if existing firms earn a profit, and profit in the long term will decrease because new inters will take some of these profits D.Perfect Competition In case of perfect competition new and new firms will inters the market for free and without any barriers and the profit will decrease to P = MC

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Synergy University, Managerial Economics, Assignment

  • 1. Economic and Legal Environment of Business Assignment 1 EMBA Strategy and Leadership Program Instructor: Prof. Saad Kiryakos Student: Mohammed Nasser
  • 2. Assignment Solve all of the following problems. Your answers should be supported by diagrams and or mathematical equation 1. An economics consultant for ABC corporation recently provide the firm’s marketing manger with this estimate of the demand function for the firm’s product Qx = 12000 - 3px + 4 py - 1M + 2Ax A. How much of good X can do customer purchase? This Question mean what is the available demand in the market for X good can customer purchase it we can solve it by Put the number into the equation ; Qx = 12000 - 3(200) + 4(15) - 1(10000) + 2(2000) Qx = 5460 goods B. Are goods X and Y substitutes or complements? Qx = 12000 - 3px + 4 py - 1M + 2Ax X and Y are substitutes because the relation between Qx and Px are negative this is mean when the price for good X decrease the Quantity for good X will increase, as well as the relation between Qx and Py are positive this is mean when the price for good Y increase the Quantity for good X will increase, it is mean this tow goods are substitutes C. Is good X a normal or an inferior good? Qx = 12000 - 3px + 4 py - 1M + 2Ax Good X is inferior because when the income decrease demand for good X will increase, and the opposite is true when the income increase the demand for good X will decrease.
  • 3. 2. Suppose demand and supply for Tip Top Shirts are given by: Qd = 180 - 2p Qs = 80 + 3p A. What are the equilibrium quantity and price in this market? The equilibrium point are result for demand = supply, so let’s make this equation For price: Qd = Qs 180 - 2p = 80 + 3p P = 20 For Quantity: Qd = 180 - 2(20) = 140 Qs = 80 + 3(20) = 140 Q = 140 B. Determine the quantity demanded, the quantity supplied, and the magnitude of surplus if a price floor of 35$ imposed in this market I must put the price into tow equation to gain the surplus between S and D Qd = 180 - 2(35) = 110 QS = 80 + 3(35) = 185 QS - Qd = 75 surplus in the market S D P Q E 20 140
  • 4. C. Determine the quantity demanded, the quantity supplied, and the magnitude of the shortage if a price ceiling of 15$ is imposed in this market. I must put the price into tow equation to gain the shortage between S and D Qd = 180 - 2(15) = 150 QS = 80 + 3(15) = 125 Qd - QS = 25 shortage in the market SD P Q 35 110 185 Surplus Price floor SD P Q 15 125 150 Shortage Ceiling price
  • 5. 4. The daily demand for comfort shoes is estimated to be : Qx d = 100 - 3Px + 4Py - 0.01M + 2Ax Answer: Qx = 100 - 3(25) + 4(35) - 0.01(20000) + 2(50) = 65 The Own Price elasticity of demand: EQ Px = - 3 (25/65) = -1.15 Inelastic The Cross Price elasticity of demand: EQ Py = 4(35/65) = 2.15 Elastic The Income elasticity of demand: EQ M = - 0.01(2000/65) = - 3.07 Inelastic 5. A firm’s fixes costs for 0 units of output and its average total cost of product different output levels are summarized in the table Complete the table Q FC VC TC AFC AVC ATC MC - 10,000 - 10,000 - - - - 100 10,000 10,000 20,000 100 100 200 100 200 10,000 15,000 25,000 50 75 125 50 300 10,000 30,000 40,000 33 100 133 150 400 10,000 50,000 60,000 25 125 150 200 500 10,000 90,000 100,000 20 180 200 400 600 10,000 140,000 150,000 17 233 250 500
  • 6. 6. The table K L Q MPx APK APL VMPK 0 20 0 0 0 0 0 1 20 50 50 50 3 100 2 20 150 100 75 8 200 3 20 300 150 100 15 300 4 20 400 100 100 20 200 5 20 450 50 90 23 100 6 20 475 25 79 24 50 7 20 475 0 68 24 0 8 20 450 -25 56 23 -50 9 20 400 -50 44 20 -100 10 20 300 -100 30 15 -200 11 20 150 -150 14 8 -300 A. Identify the fixed and variable inputs? Fixed cost: labor because the firm make contract for 20 hours and the cost for labor are paid in advanced Variable cost: capital because it is rent by hour and when the firm use capital for more time it will pay more. B. What are the firm fixed cost? The fixed cost for this company is: FC = 15 (wages per hour) x 20 hours FC = 300 C. What is the variable cost of producing 475 unit of outputs? The variable cost for producing 475 is VC = 75 (rent per hour) x 7 hours VC = 525 D. How many units of the variable input should be used to maximize profits? The firm’s should use 5 units of capital (variable cost)
  • 7. E. What are the maximum profit this firm can earn ? K 0 1 2 3 4 5 6 7 8 9 10 11 TR 0 100 300 600 800 900 950 950 900 800 600 300 TC 300 375 450 525 600 675 750 825 900 975 1050 1125 TP -300 -275 -150 75 200 225 200 125 0 -175 -450 -825 As you see in the table the maximum profit for this firm is 225 9. A monopoly is considering selling several units of a homogeneous product.... A. Determine the optimal number of units to put in a package Qd = 50 - 0.25p P = 200 - Qd/0.25 MR = P + ((dP / dQ) x Q) MR = 200 - 2Qd/0.25 And for monopoly the MR=MC MC = MR 120 = 200Q - 2Qd/0.25 Q = 10 number of unit in a package B. How much should the firm charge for this package ? Qd = 50 - 0.25p 10 = 50 - 0.25p P = 160 price for package 10. Should it Do it ? Explain In my opinion the monopolist should do limit price and earn only 8 million $, because if do this strategy that mean no one can inter the market for long time In reference to case when monopolist earn 20 million $ after another firm inters the market, this is will stay for short time only, and new firms will inters the market because it is open market without barriers and our profit will decrease to zero maybe or even lost But when limit the price and earn only 8 million$ it will prevent all another firms to inter the market for long time.
  • 8. 12. As the manager of monopoly, Mustafa face potential government regulation A. Determine the monopoly price and output We have Q = 25 - P and C (Q) =5Q MC = Q(dP) = 25P - 1/2 P2 MR = C (dQ) = 5/2 Q2 13. Based on the best available estimates, the market elasticity of demand for ZERA Tech’s product is -1.50. The marginal cost of producing the product is constant at 75 $, while average total cost at current production levels is 200 $ Determine optimal per unit price if ZERA Tech is a monopolist: P = ( Ed / 1 + Ed ) x MC = ( -1.5 / 1 - 1.5 ) x 75 = 225 15. Assume that the firms in the short run are earning above-normal profits. Explain what will happen to these profits in the long run for the following markets. A. Pure Monopoly In the case of pure monopoly the firm must decrease the profits till zero profit to prevent inters new firms in this open markets B. Oligopoly In the case of oligopoly the firm must decrease the profit to stay in the market and the firms must decrease the profit till MC = MR C. Monopolistic Competition in case of monopolistic competition there are no barriers to enter the market this implies that the new firms will enter the market if existing firms earn a profit, and profit in the long term will decrease because new inters will take some of these profits D.Perfect Competition In case of perfect competition new and new firms will inters the market for free and without any barriers and the profit will decrease to P = MC