Managerial Economics

Assignments should be word-processed with the relevant required Excel items copied and pasted into this Word document electronically (I suggest to use partial screen captures and ensure they are of high resolution and high quality). Once finalized, you should ‘print to pdf’ the assignment so everything is in one PDF file. Please review the PDF file prior to submitting to ensure it looks the way you want it to look. Please do not lock the PDF file as I will be inserting comments into it to reflect the grading so I can give you feedback.

Your assignment submission should have the highest professional standards of writing, appearance, formatting, and analysis. Marks will be deducted if it is lacking in any of these regards.

Please use this Word file as your assignment template and insert your answers between the questions – do not delete the questions. Add a title page at the front of this Word file. Please list group members on a front title page for your assignment and have group members names ordered alphabetically by the last name.

 

Note, for all numeric answers, show final dollar answers to at least two decimal places or more if indicated; e.g., round to the cent for dollar answers. Do not round intermediate calculations –use Excel, unrounded, for all calculations.

  1. Consider the following Industry Demand and Industry Supply Curves represented by the equations below:

Supply: P = 456 + Q/3210                  Demand: P = 3123 – Q/2987

  1. Use Excel to plot the supply and demand curves on a graph. Ensure you have price on the vertical axis. Let the horizontal axis range from 0 to 10,000,000 and the vertical axis range from 0 to 3500. Use an XY (scatter) graph and do not use smoothing but use enough points so the graph looks complete – you can connect points with a non-smoothed line if you like.
    1. What is the equilibrium (market clearing) price? Be precise; calculate it and give the exact number showing at least 2 decimal places or more. If you use this number if future calculations, use the unrounded result.
    1. Suppose the above industry supply and demand curves are for the short run in an industry characterized by perfect competition. MBA Corp is one of many similar companies that operates in this industry.
      1. What is the short-run demand curve faced by MBA Corp? Use Excel to plot it (over a range of Q from 0 to 1000and the vertical axis range from 0 to 2500). Use an XY (scatter) graph and do not use smoothing.Also write an equation to represent the demand curve.
      1. For MBA Corp, write equations and use Excel to plot (for Q from 20 to 1000and the vertical axis range from 0 to 6000 using an XY scatter graph without smoothing) the MC curve and AC curve given a total cost curve as follows: TC = 77,456 + 2.725Q2
      1. Using the data above, what is the optimal quantity MBA Corp should produce in the short run? What will be the resulting total revenue, total cost, and total economic profit?
      1. Given the results from (iii) what do you expect to happen in the long run to the industry supply curve (give a word description, no equations are necessary)? Explain why this happens.
      1. Given (iv), what do you expect to happen to the demand curve faced by MBA Corp? Explain and be specific as to the demand curve’s precise equation – write the equation.
      1. Given (v), what will happen to the quantity produced, revenue, cost and economic profit of MBA Corp? Show relevant numbers.
  • Consider the following industry supply and demand curves:

Supply: P = 567 + Q/3210                  Demand: P = 3456 – Q/2987

  1. What will be the equilibrium price and quantity? Suppose the government imposes a specific tax on producers of $100 per unit. Show the equations for the new supply and demand curves. What will be the new equilibrium price and quantity? How much (in %) did each of the price and quantity change compared to the original equilibrium amounts? What proportion of the tax is paid by suppliers and what proportion of the tax is paid by consumers(considering the tax paid and any change in price)? If the tax is meant to reduce environmental damage caused by the production and consumption of the product, has it been effective, why or why not?
    1. Redo (a) assuming the original demand curve is P = 1789 (i.e., it is horizontal).
    1. Redo (a) assuming the original demand curve is Q = 4,123,456 (i.e., it is vertical).
    1. What will be the equilibrium price and quantity (same as original result in part a)? Suppose the government imposes an ad valorem 12% tax on the sale price paid by consumers. Show the equations for the new supply and demand curves. What will be the equilibrium price and quantity? How much will consumers pay per unit including the tax? How much did the each of the price (before tax) and quantity change compared to the original equilibrium amounts? What is the total amount of tax the government collects per unit sold? What proportion of the tax is paid by suppliers and what proportion of the tax is paid by consumers (considering the tax paid and any change in before-tax price)?If the tax is meant to reduce environmental damage caused by the production and consumption of the product, has it been effective, why or why not?
    1. Redo (d) assuming the original demand curve is P = 1789 (i.e., it is horizontal).
    1. Redo (d) assuming the original demand curve is Q = 4,123,456 (i.e., it is vertical).

  • Consider the following Industry Demand and Total Cost Curves for an industry characterized by monopoly:

Total Cost = 698765 + 6.789Q3                      Demand: P = 1,098,765 – 154Q2

  1. What are the marginal cost, average cost, and marginal revenue curves faced by ABM Corp – the monopoly firm? Indicate the equations for these curves and use Excel to plot them and the demand curve over a range of Q from 10 to 85(with scale shown in increments of 10) with the vertical axis from -$50,000 to $110,000(with scale shown in $10,000 increments). Ensure you plot enough points to get smooth looking curves without major gaps. Use an XY scatter graph without the smoothing option but you can connect the dots with straight lines.
    1. At what level of quantity would ABM’s average cost be minimized?
    1. What level of quantity does ABM Corp choose to produce?
    1. What is the price charged, total revenue, total cost, and economic profit for ABM Corp?
    1. What is the price elasticity of demand given the quantity ABM Corp chooses to produce? Interpret what the price elasticity of demand number you calculated implies about the impact of increasing price on total revenue. What strategy implications might this mean for ABM Corp.
    1. If this industry begins to become more competitive, what will happen to the demand curve faced by ABM Corp? No equations are necessary, but give a sufficient word description as to what will happen.
    1. What actions might a corporation’s management take to maintain a competitive advantage? Please be clear and concise.
      1. Consider a monopoly with a contestable market.
      1. Consider an oligopoly situation.
      1. Consider monopolistic competition and think of both demand and production aspects in your suggestions. 
    1. What would happen if there were a $250,000 per unit environmental tax that had to be paid by the monopolist firm to offset environmental damage. Compare the price charged in (d) to the new price to be charged. What proportion of this tax is passed on to consumers (consider the net effects of the tax and the change in price)?By what percentages do output and profitability change? What is the proportionof total tax collected to total revenue (in %)? Would this be consistent with the concept of sustainability or is it mainly a tax grab by the government (compare the percentage change in output to the percentage of total revenue collected in tax)?
    1. Suppose the good produced was actually something desirable for society to have and the government wanted to put a price ceiling on the good (there would be no tax in this case). What price should the government set so as to ensure there is no shortage and no surplus of the good? What will be the quantity consumed in this case? What will be ABM’s total revenue, total cost, and economic profit in this case?
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