The Homework Covers Chapters 3–6; It Must Be Your Individual

The Homework Covers Ch 3 6 It Has To Be Your Individual Work Copyi

The homework covers Chapters 3 through 6. It must be completed individually. Answers should include necessary derivations where applicable, and the final answers should be highlighted. Limit your responses to within five pages. No cover sheet is required.

Paper For Above instruction

In this assignment, several key economic concepts are examined through diverse questions ranging from regression analysis and consumer preferences to production functions, cost analysis, and elasticity calculations. Each question requires a comprehensive understanding of economic theory and its practical applications, emphasizing critical thinking and analytical skills.

Question 1: Regression Analysis in Marketing Strategy

The first question investigates a multiple regression model analyzing the sales of Vanguard Corporation’s Bright Side laundry detergent (S). The model posits that sales are influenced by Vanguard’s advertising expenditure (A) and the advertising expenditures of its three main competitors (R). With a regression output available, the task is to interpret the signs of the coefficients, assess statistical significance based on p-values, evaluate the explanatory power of the model, and predict sales at given expenditure levels.

For interpreting the signs of the coefficients, a positive b indicates that increased advertising by Vanguard correlates with higher sales, whereas a positive c suggests that competitive advertising may also positively influence Vanguard’s sales, possibly due to market awareness effects. Conversely, a negative c would imply competitive advertising negatively impacts sales.

Statistical significance is assessed by p-values; a p-value less than 0.10 indicates that the coefficient is statistically significant at the 10% significance level. If Vanguard’s advertising expenditure's p-value is below this threshold, the director can confidently conclude that A influences S. Similarly, the significance of R’s advertising expenditures indicates its impact.

The unexplained variation in sales, represented by the R-squared value, indicates the proportion of total variation not explained by the model. To improve the model's explanatory power, including additional variables such as pricing strategies, seasonal factors, or promotional activities could be beneficial.

Using the estimated regression equation, the expected sales when Vanguard spends $30,000 weekly and competitors spend $200,000 can be computed by substituting these values into the model, providing actionable sales forecasts.

Question 2: Consumer Preferences and Marginal Rate of Substitution

Lorna’s preference between bundles of anchovies (A) and biscuits (B) involves analyzing her indifference curves and the marginal rate of substitution (MRS). With a given MRS of -1 (i.e., MUA/MUB = -1) at the point where A=2 and B=2, the question is whether she prefers the bundle with three cans of anchovies and one box of biscuits over the bundle with two cans and two boxes.

The MRS indicates the rate at which she is willing to substitute biscuits for anchovies while remaining indifferent. Since her MRS at (2,2) is -1, it suggests she is willing to give up one can of anchovies for one additional box of biscuits. Moving to the bundle (3,1) involves a change of +1 in anchovies and -1 in biscuits, which aligns with her MRS, implying that she prefers the marginal substitution benefit. The comparison of the total utility between these bundles would confirm her preference.

Question 3: Convexity of Indifference Curves and Marginal Rate of Transformation

Indifference curves are convex to the origin because of the increasing marginal rate of substitution—the more of one good a consumer has, the less willing they are to give up additional units of the other good, reflecting diminishing marginal utility. Evidence from consumer behavior and utility theory supports convex shapes, ensuring a realistic diminishing willingness to substitute goods as quantities change.

The marginal rate of transformation (MRT) between burritos (B) and pizza (Z) derived from the budget constraint Y=500=pBB+pZZ=5B+10Z is the slope of the budget line. It is computed as the ratio of the prices, which is - (pZ/pB) = - (10/5) = -2. This implies that giving up one burrito allows the consumer to obtain two more pizzas.

Question 4: Isoquant and Capital-Combining Production

Table 5.2 (not provided here) describes output levels produced with varying labor (L) and capital (K). To draw the isoquant at an output level of 20, plot the combinations that yield this output. Starting at L=4, K=1, with output 20, reducing labor to L=3 generally requires additional capital to maintain output; the exact amount depends on the production function specifics. Similar calculations apply when decreasing labor to L=2, with additional capital needed to keep output constant, reflecting the trade-off between inputs.

Question 5: Production with Fixed Proportions and Returns to Scale

Michelle’s production process uses a fixed proportion of labor and clay, with only one kiln used regardless of output. Producing 25 cups with one worker and 35 with two suggests increasing marginal productivity initially, but as output continues to grow, diminishing returns emerge due to fixed inputs and capacity constraints. The non-proportional increase indicates diminishing returns to scale and a diminishing marginal product of labor, with output limited by fixed resources like the kiln.

Question 6: True or False - Investment and Opportunity Cost

a. It is false that paying cash for equipment is always better than borrowing; financing can preserve liquidity and provide tax advantages.

b. A profit-maximizer would choose the entrepreneurial route if total profit exceeds that of employment, calculated as revenue minus explicit costs and opportunity costs. Here, the business revenue of $100,000 minus explicit costs of $40,000 leaves a profit of $60,000, which exceeds the salary of $50,000, favoring entrepreneurship.

Question 7: Economies of Scale in Shopping at Supermarkets

Shopping at a single supermarket reduces total transaction costs because the fixed costs (travel time, effort) are spread over multiple goods purchased at once, and variable costs associated with searching for different items are minimized. Mathematically, average costs decline as the total costs are divided by the number of goods bought, demonstrating economies of scale in shopping behavior.

Question 8: Demand for Tennis Balls and Elasticities

Wilpen Company’s demand function, Q = a + bP + cM + dPR, has parameters estimated via regression. The significance of parameters b, c, and d is assessed by p-values; significant coefficients indicate meaningful relationships with demand. A positive c means higher income increases demand, while a positive d indicates that higher racket prices also boost tennis ball sales, perhaps due to complementary effects.

Using the given variables and estimated demand, demand at P=$1.65, M=$24,600, and PR=$110 can be predicted by plugging these into the demand equation. Elasticities measure the responsiveness of demand to price, income, and cross-price changes; calculated accordingly, these inform supply and pricing strategies.

Increases in income or racket prices produce percentage changes in demand based on derived elasticities, guiding forecasts and strategic decisions for the firm.

References

• Greene, W. H. (2012). Econometric Analysis (7th ed.). Pearson.
• Varian, H. R. (2010). Intermediate Microeconomics: A Modern Approach (8th ed.). W.W. Norton & Company.