Yardistic International College
Managerial Economics- Group Assignment (1)
Instructions
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The Team: A maximum of 5 students should participate in one group.
Please write your name, section and ID number on your answer sheet.
Zero mark for plagiarism.
Respect the deadline for submission. Late submission is not acceptable.
Deadline: May 16, 2021
Maximum Point: 10%
1. Consider the general supply function:
𝑄𝑠 = 60 + 5𝑃 − 12𝑃𝐼 + 10𝐹
where Qs=quantity supplied, P = price of the commodity, 𝑷𝑰 =price of a key input in
the production process, and F= number of firms producing the commodity.
a. Interpret the slope parameters on P, 𝑷𝑰 , and F.
b. Derive the equation for the supply function when 𝑷𝑰 =$90 and F= 20.
c. Sketch a graph of the supply function in part b. At what price does the supply curve
intersect the price axis? Give an interpretation of the price intercept of this supply
curve.
d. Using the supply function from part b, calculate the quantity supplied when the price
of the commodity is $300 and $500.
e. Derive the inverse of the supply function in part b. Using the inverse supply function,
calculate the supply price for 680 units of the commodity. Give an interpretation of
this supply price.
2. Other things remaining the same, what would happen to the supply of a particular
commodity if the following changes occur?
a. The price of the commodity decreases.
b. A technological breakthrough enables the good to be produced at a significantly lower
cost.
c. The prices of inputs used to produce the commodity increase.
d. The price of a commodity that is a substitute in production decreases.
e. The managers of firms that produce the good expect the price of the good to rise in
the near future.
f. Firms in the industry purchase more plant and equipment, increasing the productive
capacity in the industry.
3. Suppose that the demand and supply functions for good X are
𝑄𝑑 = 50 − 8𝑃
𝑄𝑠 = −17.5 + 10𝑃
a.
b.
c.
d.
What are the equilibrium price and quantity?
What is the market outcome if price is $2.75? What do you expect to happen? Why?
What is the market outcome if price is $4.25? What do you expect to happen? Why?
What happens to equilibrium price and quantity if the demand function becomes
𝑄𝑑 = 59 − 8𝑃
e. What happens to equilibrium price and quantity if the supply function becomes
𝑄𝑠 = −40 + 10𝑃 (demand is 𝑄𝑑 = 50- 8P)?
4. Assume that the demand for cosmetic or plastic surgery is price inelastic. Are the
following statements true or false? Explain.
a. When the price of plastic surgery increases, the number of operations decreases.
b. The percentage change in the price of plastic surgery is less than the percentage
change in quantity demanded.
c. Changes in the price of plastic surgery do not affect the number of operations.
d. Quantity demanded is quite responsive to changes in price.
e. If more plastic surgery is performed, expenditures on plastic surgery will decrease.
f. The marginal revenue of another operation is negative.
5. Suppose that you are a portfolio manager for a large, diversified mutual fund. The fund’s
chief economist is forecasting a slowdown in aggregate economic activity (i.e., a recession).
Discuss how would you use your knowledge of estimated income elasticities of demand to
alter the composition of the portfolio?