Busn 6120 Managerial Economics Midterm Exam

Busn 6120 Managerial Economics Mid Term Exam

Instructions: You will answer the following 10 questions. Each question is worth 10 points. Show all calculations as partial credit will be given. Thank you and good luck.

Paper For Above instruction

Question 1: Based on the given data for the price of steaks, supply, and demand, create a supply and demand graph. Indicate the market equilibrium point on the graph. Complete the last column to show whether there is a surplus or shortage at each price level, specifying the amount.

Question 2: The demand curve for T-shirts at The Road Kill Café is given by Q = 200 – 10P, where Q is quantity and P is price.

• a. Calculate the quantity of T-shirts sold at a price of $10.
• b. Determine the price that the café must charge to sell 100 T-shirts.

Question 3: Calculate the price elasticity of demand in the following scenarios:

• a. Shoes: Price increases by 10%; quantity purchased decreases by 9%. Is demand elastic or inelastic?
• b. Autos: Price increases by 18%; quantity purchased decreases by 20%. Is demand elastic or inelastic?
• c. Income: increases by 12%; purchase quantity increases by 10%. Is demand elastic or inelastic?

Question 4: In a monopolistic competitive market, provide the following details:

• a. Number of buyers
• b. Number of sellers
• c. Product type
• d. Prices
• e. Advertising
• f. Industry example

Question 5: In a monopoly market, provide the following details:

• a. Number of buyers
• b. Number of sellers
• c. Product type
• d. Prices
• e. Advertising
• f. Industry example

Question 6: The demand for cruises in the U.S. is highly cyclical and sensitive to market conditions. Describe the effects of each of the following, indicating whether demand increases or decreases, with brief explanations:

• a. A decrease in the average price of cruise tickets
• b. An increase in fear of traveling by air due to terrorist threats
• c. A significant rise in advertising by cruise companies

Question 7: In a perfect competitive marketplace, complete the following:

• a. Number of buyers
• b. Number of sellers
• c. Product type
• d. Prices
• e. Advertising
• f. Industry example

Question 8: Using the provided financial data, calculate both the accounting profit and the economic profit (or loss). The data include: Sales = $750,000; Cost of Goods Sold = $450,000; General & Administrative expenses = $150,000. The opportunity cost of the three owners' foregone salaries is estimated at $60,000 each.

Question 9: In an oligopoly market, provide the following details:

• a. Number of buyers
• b. Number of sellers
• c. Product type
• d. Prices
• e. Advertising
• f. Industry example

Question 10: Complete the following chart with the total costs, marginal costs, and average costs for the specified output levels:

Paper For Above instruction

Question 1: Creating a supply and demand graph for steaks involves plotting the quantities supplied and demanded at various price points. If specific data points were provided, the graph would feature a downward-sloping demand curve and an upward-sloping supply curve. The equilibrium point occurs where these two curves intersect, indicating the market price and quantity where supply equals demand. To identify surplus or shortage, the graph must be examined at different prices, determining whether quantity supplied exceeds demand (surplus) or demand exceeds supply (shortage). For each price level, the difference between quantity supplied and demanded indicates the surplus or shortage.

Question 2: The demand function Q = 200 – 10P allows us to calculate sales at different prices. At P = $10: Q = 200 – 10(10) = 200 – 100 = 100 T-shirts. To sell 100 T-shirts: 100 = 200 – 10P, solving for P gives P = (200 – 100)/10 = 10. Therefore, at $10, the café can sell 100 T-shirts, and the price to achieve this sales volume is $10.

Question 3: Elasticity measures responsiveness of quantity demanded to price or income changes. Using the formula for price elasticity of demand (PED) = (% change in quantity demanded) / (% change in price):

• a. Shoes: PED = (–9%) / (10%) = –0.9. Absolute value is less than 1, so demand is inelastic.
• b. Autos: PED = (–20%) / (18%) ≈ –1.11. Absolute value exceeds 1, so demand is elastic.
• c. Income elasticity: E = (10%) / (12%) ≈ 0.83. Since it is less than 1, demand is inelastic, indicating goods are normal but not luxury.

Question 4: In monopolistic competition, typical characteristics include many buyers and sellers, differentiated products, moderate pricing power, active advertising, and free entry and exit. Industry examples include restaurants and clothing stores.

Question 5: Monopoly market features usually include a single seller dominating the market, unique product with no close substitutes, significant market power influencing prices, advertising to differentiate the product, and high barriers to entry. Industries like utilities exemplify monopolies.

Question 6: The demand for cruises reacts to market conditions:

• a. Decreasing ticket prices typically increases demand, as cruises become more affordable to more consumers.
• b. Terrorist threats elevate travel fears, decreasing demand as consumers perceive higher risks associated with traveling by air or choosing cruises as an alternative.
• c. Increased advertising enhances consumer awareness and desirability, leading to higher demand.

Question 7: In perfect competition, the market is characterized by a large number of buyers and sellers, homogeneous products, free entry and exit, and minimal advertising. Examples include agricultural markets like wheat or corn.

Question 8: Calculating profits:

• Accounting profit = Total revenue – Explicit costs = $750,000 – ($450,000 + $150,000) = $750,000 – $600,000 = $150,000.
• Economic profit = Accounting profit – Opportunity costs of owners' salaries. Owners' salaries total 3 × $60,000 = $180,000. Since the explicit costs are $600,000, and opportunity costs are $180,000, the total cost considering opportunity costs is $600,000 + $180,000 = $780,000. Therefore, economic profit = $750,000 – $780,000 = –$30,000 (a loss).

Question 9: An oligopoly features a few dominant firms, significant barriers to entry, differentiated or homogeneous products, and strategic interaction between firms. Industry examples include automobile manufacturing and airline industries.

Question 10: For the costs chart:

Marginal costs are calculated as the increase in total costs when production is increased by one unit (e.g., for unit 2: $110 – $100 = $10). Average costs are total costs divided by the number of units produced (e.g., for unit 2: $110 / 2 = $55).

References

• Blanchard, O. (2017). Microeconomics. Pearson.
• Mankiw, N. G. (2020). Principles of Economics. Cengage Learning.
• Krugman, P., & Wells, R. (2018). Microeconomics. Worth Publishers.
• Perloff, J. M. (2017). Microeconomics. Pearson.
• Varian, H. R. (2014). Intermediate Microeconomics: A Modern Approach. W. W. Norton & Company.
• Pindyck, R. S., & Rubinfeld, D. L. (2018). Microeconomics. Pearson.
• Carlton, D. W., & Perloff, J. M. (2015). Modern Industrial Organization. Pearson.
• Hubbard, R. G., & O'Brien, A. P. (2018). Microeconomics. Pearson.
• Sullivan, A., & Sheffrin, S. M. (2013). Microeconomics: Principles, Applications, and Tools. Pearson.
• Frank, R., & Bernanke, B. (2019). Principles of Economics. McGraw-Hill Education.