Sultan Azlan Shah University

ECO 7013 MANAGERIAL ECONOMIC (MASTER PROGRAM): Semester 2

Session 2016/2017

Assignment.

Case Exercise 1
Answers for Case Problems in Text Book page:
Problems 2 (pg 84)

a)
Price QS QD Surplus or
($) Shortage
6.00 55 000 5 000 50 000 :
Surplus
5.00 40 000 15 000 25 000 :
Surplus
4.00 25 000 25 000 0 : Equilibrium
level
3.00 10 000 35 000 25 000 :
Shortage
2.00 5 45 000 50 000 :
000 Shortage
1.00 20 55 000 75 000 :
000 Shortage

b) Equilibrium price = $4.00

Problems 3 (pg 85)

Q=15004 P+5 A+10 I +3 P X

a) Q=15004 ( $ 400 )+ 5 ( $ 20 000 ) +10 ( $ 15 000 ) +3 ( $ 500 )

2514000

b) 2514000=15004 ( $ 400 ) +5 ( A ) +10 ( $ 15 000 ) +3 ( $ 500 )

A=$ 20 06 0

The company only increase $60 from the original advertising

expenditures.
 Yes, worth it because in theory, the more money a company spends on
developing effective advertising campaigns, the more products
consumers will buy.
c) Other variables are:
1) The Tastes and Preferences of Consumers
This is a less tangible item that still can have a big impact on
demand. There are all kinds of things that can change ones tastes
or preferences that cause people to want to buy more or less of a
product.
2) The Consumers Income
The effect that income has on the amount of a product that
consumers are willing and able to buy depends on the type of good
were talking about. For most goods, there is a positive (direct)
relationship between a consumers income and the amount of the
good that one is willing and able to buy.
Problems 4 (pg 85)
Consider the following supply and demand curves for a certain product.
Qs=25,000 P

QD =50,00010,000 P

a) plot the demand and supply curves

Price QS QD
($)
1.00 25 000 40 000
2.00 50 000 30 000
3.00 75 000 20 000
4.00 100 10 000
000
 P
4.5 D S
4
3.5
3
2.5 Y-Values
2
1.5
1
0.5
0 Q
20000 40000 60000 80000 100000 120000

b) what are the equilibrium price and equilibrium quantity for the
industry? Determine the answer bothalgebraically and graphically.
Answer: equilibrium price 50000 35000=$ 1.4 ,
equilibrium quantity 36000

Problems 5 (pg 85)

Following are three sample equations. Plot them on a graph in which Q is on
the vertical axis and P is on the horizontal axis. Then transform these
equations so P is expressed in terms of
Q and plot these transformed equations on a graph in which P is on the
vertical axis and
Q is on the horizontal axis.
a) Q=25010 P
b) Q=1300140 P

c) Q=450.5 P

Case Exercise 2
Upload Your Answer Case Problems in Text Book Page:
Problems 2 (pg 241)
The owner of a car wash is trying to decide on the number of people to
employ based onthe following short-run production function:
 2
Q=6 L0.5 L
where Q = Number of car washes per hour
L = Number of workers
a. Generate a schedule showing total product, average product, and
marginal product.Plot this schedule on a graph.
b. Suppose the price of a basic car wash (no undercoating, no wax
treatment, etc.) in his area of business is $5. How many
people should he hire if he pays each worker $6/hour?
c. Suppose he considers hiring students on a part-time basis for $4/hour. Do
you thinkhe should hire more workers at this lower rate? Explain.

Problems 4 (pg 241)

Suppose Nobles production function (see Problem 7) is as follows:
Q=7 V 0.5 V 2
where Q is the number of widgets produced per day and V is the number of
production workers working an 8-hour day.
a. Develop a production schedule with V equaling 1 to 10.
b. Calculate average and marginal products.
c. Draw a graph.

Problems 9 (pg 242-243)

The Oceanic Pacific fleet has just decided to use a pole-and-line method
of fishing instead of gill netting to catch tuna. The latter method involves
the use of miles of nets strung out across the ocean and therefore entraps
other sea creatures besides tuna (e.g., porpoises, sea turtles). Concern for
endangered species was one reason for this decision, but perhaps more
important was the fact that the major tuna canneries in the United States
will no longer accept tuna caught by gill netting. Oceanic Pacific decided
to conduct a series of experiments to determine the amount of tuna that
could be caught with diff erent crew sizes. The results of these
experiments follow.

Number of Fishermen Daily Tuna Catch (lb)

0 0
1 50
2 110
3 300
4 450
5 590
6 665
7 700
8 725
9 710
a. Determine the point at which diminishing returns occurs.

b. Indicate the points that delineate the three stages of production.

c. Suppose the market price of tuna is $3.50/pound. How many

fishermen should the company use if the daily wage rate is $100?

d. Suppose a glut in the market for tuna causes the price to fall to
$2.75/pound. What effect would this have on the number of fishermen
used per boat? Suppose the price rose to $5.00/pound. What effect would
this have on its hiring decision?

e. Suppose the firm realizes that to keep up with the demand for tuna caught
by themore humane pole-and-line method of fishing, each of its boats
must catch at least1,000 pounds of fish per day. Given the preceding
data, what should it consider doing?Explain.