THE ZAMBIA CATHOLIC UNIVERSITY
FACULTY OF BUSINESS, BANKING AND FINANCE DEPARTMENT OF
ECONOMICS
EC 350: MANAGERIAL ECONOMICS
SEMESTER ASSIGNMENT
TOPIC: SCOPE OF MANGERIAL ECONOMICS AND OPTIMIZATION TECHNIQUES
INSTRUCTIONS:
Answer all questions
CONTINUOUS ASSESSMENT VALUE: 8%
DUE DATE: end of 2nd month of classes
LECTURER: Mr. BEN CHANSA
Cell : 0969 255403/ 0972 546500
Email: chansab@zcuniversity.edu.zm
PART A: DISCUSSION QUESTIONS
QUESTION 1- THE SCOPE OF MANAGERIAL ECONOMICS
a) State the theory of the firm
b) How does the theory of firm differ from short term maximization? Is the former superior to the
latter?
c) How does the theory of the firm provide an integrated framework for the analysis of managerial
decision making across the functional areas of business?
QUESTION 2 – OPTIMISATION TECHNIQUES
a) Define average and marginal
(i) Revenue
(ii) Product
(iii)Cost
(iv)Profit
b) Examine the relationship between average product and marginal product. c) How
does a firm determine the profit maximizing output? d) (i) What is meant by the
“concept of the derivative”?
(ii) Why are the concept of the derivative and the use of differential calculus so important to
marginal analysis?
e) (i) What is meant by the “second derivative”?
(ii) How is the second derivative used in distinguishing between a maximum and a minimum point?
f) (i) What is meant by the “partial derivative”?
(ii) How is it determined?
(iii) Why is the concept of the partial derivative important in managerial economics?(iv) How can
we use partial derivatives to optimize a multivariate function?
g) (i) What is meant by “constrained optimization”?
(ii) How important is this to managerial economics?
(iii) How can a constrained optimization problem be solved?
h) (i) What is meant by the “Lagrangian multiplier method”? (ii) How is the
Lagrangian function formed?
(iii) How can constrained optimization problem be solved by the Lagrangian method?
PART B: PROBLEMS
QUESTION 1
Mr. Chanda started earning $ 2,000 a month in a multinational company in Lusaka in 2016. As per his
terms of appointment; he gets a salary hike of 10 per cent every year. Suppose that in Zambia the rate of
annual inflation has been 5 per cent for the last 5 years. How much will his salary be 2021?
QUESTION 2
A middle aged man managing photocopy business for K25,000 per year decides to open his own
duplicating place. His revenue during the first year of operation is K120,000 and his expenses are as
follows:
Salaries to hired help K 45,000 Supplies K 15,000 Rent K 10,000
Utilities K 1,000 Interest on bank loan K 10,000
Required: Distinguish between business profits and economic profits and calculate:
a) The explicit costs
b) The implicit costs
c) The business profit
d) The economic profit
e) The normal return on investment in this business
QUESTION 3
Given the following total-cost schedule:
Q01234
TC 1 12 14 15 20
Required:
a) Derive the average, and marginal cost schedules
b) On the same set of axes, plot the total- cost, average cost and marginal cost schedules c) Explain the
relationship among the total cost, average cost and marginal profit curves in part (b)
QUESTION 4
Find the best profit point of a firm whose total revenue and total cost functions are as follows: R = 260Q -3Q2
C = 500 – 20Q
(Hint : ie. How many units of Q will the firm need to produce to maximize profit)
QUESTION 5
a) Calculate the approximate change in y on the function y = x2 + x – 2 as x increases from 2 to 2.1
b) Find turning points and points of inflection(if any) for the following curves (i) Y = x2 + 12x –
20
(ii) Y = 40 + 3x – 2x2 + x2
3
QUESTION 6: Constrained optimization by substitution A firm seeks to maximize
its total – profit function given by:
= 80X – 2X2 – XY – 3y2 + 100y
But faces the constraint that the output of commodity X plus the output of commodity Y must be 12. That
is,
X + Y =12
Required:
Determine the production mix of X and Y units that will maximize total profits
QUESTION 1
A passenger train runs between Kitwe and Lusaka. It has a cost function estimated by TC = 100P – 64P2 +
4P3
Where P indicates the number of passengers per day.
Required:
Find the number of passengers per day that minimizes the average cost
QUESTION 2