New Global Vision College
School of Post Graduate
Managerial Economics
Group Assignment 1- 20%
Part I. Give a short answer to each question.
1. What are the points of managerial economics? How is it helpful to managers? Answer with
the help of examples.
2. Market equilibrium
I.
What does it mean by market equilibrium?
II.
Illustrate graphically the effect of an Increase in Demand and an Increase in
Supply by equal magnitude.
III.
Illustrate graphically the effect of An Increase in Demand and a Decrease in
Supply
IV.
Illustrate graphically the effect of A Decrease in Demand and a Decrease in
Supply
V.
illustrate graphically the effect of A Decrease in Demand and an Increase in
Supply
3. Define the following terms
I.
Production isoquants; isoquant map,
II.
Definition;
A. source of economies of scale.
B. internal economies of scale.
C. external economies of scale.
D. Learning curve effects
Part II. Workout.
1. Suppose that the demand and supply functions for good X are
𝑄𝑑 = 50 − 8𝑃
𝑄𝑠 = −17.5 + 10𝑃
a. What are the equilibrium price and quantity?
b. What is the market outcome if price is $2.75? What do you expect to happen? Why?
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c. What is the market outcome if price is $4.25? What do you expect to happen? Why?
d. 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)?
2. The market demand for brand X has been estimated as
𝑄𝑥 = 1,500 − 3𝑃𝑥 − 0.05𝐼 − 2.5𝑃𝑦 + 7.5𝑃𝑧
where Px is the price of brand X, I is per-capita income, Py is the price of brand Y, and Pz is
the price of brand Z. Assume that Px = $2, I = $20,000, Py = $4, and Pz = $4.
a.
b.
c.
d.
e.
With respect to changes in per-capita income, what kind of good is brand X?
How are brands X and Y related?
How are brands X and Z related?
How are brands Z and Y related?
What is the market demand for brand X?
3. Suppose that a firm’s total cost equation is
𝑇𝐶 = 125,000 + 100𝑄 + 0.5𝑄 2
a) Determine the output level that minimizes average total cost.
b) Calculate the average total cost and marginal cost at the level of output that will minimize
the average total cost.
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