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Managerial Economics Final Exam 2013 (summer) CHAPTER 5 -10




Question;1. The following table shows data for a simple production function.Capital costs this firm $ 15 per unit, and labor costs $9 per worker.KL(Capital) (Labor) TP2002020202020202020201234567890 TFC51530507585909292TVCTCAFCAVCATCMCa. From the information on the table, calculate total fixed cost (TFC), total variable cost (TVC),total cost (TC), average fixed cost (AFC), average variable cost (AVC), average total cost (ATC),and marginal cost (MC).b. At what point is average total cost minimized? At what point is average variable costminimized?2. A monopolist sells in two geographically divided markets, the east and the West. Marginal costis constant at $100 in both markets. Demands and marginal revenue in each market are asfollows:Qe= 1000-2PeMRe= 450 QeQw= 700-PwMRw= 700- 2Qwa. Find the profit maximizing price and quantity in each market.b. In which market is demand more elastic?c. If the marginal cost goes up in west to $110, how will Pw and Qw will change in west?3. Using the graph below calculate the profit:a. If the firm is making economic profit what will be the price and the quantity?b. If the firm is making zero economic profit, what will be the price and the quantity?c. If the firm is making negative economic profit, what will be the price and the quantity?4. Last week, Wally's Burgers, Inc. reduced the average price on the 1/2-pound Papa burger by1%. In response, sales jumped by 4%.A. Calculate the point price elasticity of demand for Papa burgers.B. Calculate the optimal price for Papa burgers if marginal cost is $1 per unit.5. Van Farms Inc. is a small grower of watermelons. Van Farms estimates that watermelon outputwould increase by 1,200 per month with an additional 1,000 gallons of water per month providedby an irrigation system. Alternatively, watermelon output could be increased by 500 per monthwith an additional 2 tons of fertilizer per month. Assuming the cost of water is $.03 per gallonand that fertilizer is $5 per ton, is Van Farms using an optimal combination of fertilizer and water(cost-minimizing combination of inputs)? Why or why not? Please explain what will be the bestthing for the Van Farms Inc. to do, increase the water input or the fertilizer in order to be at (costminimizing combination of inputs).6. The following matrix shows strategies and payoffs for two firms that must decide how toprice.Firm 2Price highFirm 1Price high400, 400Price low-50, 700Price low700, -50100, 100a. Does either firm have a dominant strategy and if so, what is it?b. What is the Nash equilibrium, of this game?c. Why would this be called a prisoners dilemma game?Qualitative Analysis (40%)7. Compare and contrast differences and similarities between perfect market, oligopoly,monopoly and a monopolistic market. Also, discuss in which market structure you believe thatyour company/organization for your Wedding and Events Planner and Organizer companyproject will fall and state the reasons why.8. Assume two firms are currently competing in a market. If one of the two firms wants to try toeliminate the other firm as a competitor, should it undertake a strategy of limit pricing orpredatory pricing? Why? In addition, describe the conditions under which the strategy you haveselected will be most successful9. How many types of price discrimination do you know and which one might be appropriate foryour Wedding and Events Planner company project?10. Why would your Wedding and Events Planner Company would not want to compete againsta monopolistic or oligopolistic company?


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