upload assignment week one assignment sample questions

Chapter 2:The Firms and its Goals

1. What is managerial economics and what are the questions we will try to answer in this course?

2. In your own words describe the process of change for businesses (4 stage model) and explain where in that process the firm you work at would be?

3. Relate the concepts of scarcity and opportunity cost.

4. What is the opportunity cost of you taking ECO607 this month?

5. Explain how the ‘what, how and whom’ questions are solved in the US economy and give instances of it

1. Why does a firm perform certain functions internally and others through the market? Provide instances of both functions in your work place.

2. What is profit maximization hypothesis? Is this the goal of the firm you work for?

3. What is the difference between optimizing and satisficing? What firms do in reality?

4. How do we measure risk and how do we calculate stockholder’s wealth?

5. How implicit costs and opportunity costs differentiate financial profits from economic profits?

6. Explain how the Economic Value Added is the closest measure for economic profit?

Chapter 3: Supply and Demand

Chapter 4: Demand Elasticity

1. What is Demand?

2. What is market demand function? Think
in a real product and provide the demand function of it with 5 specific variables. 3. What is the difference between shifts in demand vs. changes in quantity demanded?

4. What is Supply?

5. What is a supply function? Think in the same
product you presented for question two and
provide the supply function for it with 5 specific
variables.

6 . What is the difference between shifts in
supply vs. changes in quantities supplied ?

7. Think in your last visit to a mall and identify a case of market shortage and another case of market surplus. Make a market graph for each case (Demand and Supply, Price and Quantity of equilibrium). 8. Assume that family income goes down and nothing else changes. What will happen to the price and quantity of equilibrium in the market of high definition TVs?

1. If you are a gas station manager and reduce the price of each gallon of regular gasoline 50%, why would you be interested in knowing the price elasticity of gasoline?

2. Given the price elasticity values in Table 1 below, what price policy would you recommend the gas station manager?

3. Base on Table 1, provide one instance of a product with elastic demand and another instance of an inelastic or unitary demand.

• a) Draw the respective demands using those elasticity values (Hint: Start with an initial point (Q,P)=(100,10), drop/increase the price 10% and find the second and third points using the elasticity value). Figure 4.3 in page 86 may help.
• b) If you want to increase the revenue level of those 2 products, would you increase or reduce prices 10%? Demonstrate that revenue in fact increases (Hint: Revenue = Q*P. Table 4.2 in page 89 may help).

4. If the price elasticity of demand for beer is -0.84 and wine -0.55 (page 93) how much revenue changes for both products if you increase prices by 10%. Would this decision increase profits?

5. What is income elasticity of demand?

6. Pick 2 businesses from the list in Table 2 and predict what would be the demand change in those businesses since the economic recession started in December 2008.