Managerial Economics

Managerial Economics
Answer the following questions, please do not include the question in your response. Half page per question.

1. Long-run real interest rates are expected to increase. An accountant

and an MBA student (who just finished his course of Managerial

Economics) where interviewed regarding the effect on the firm they

both work at. Keeping all else constant, their answer would likely

differ. How do you guess the interviewed will answer? Does the

difference in response matters? If yes, why? If not, why not?

2. Many cities have experienced a substantial decrease in the amount of

garbage being collected after they changed from levying a tax on each

household to pay for the pickup to charging a fee for each bag or can

picked up. Would this have been the result of a change in Demand?

If so, why; if not, why not? If not, what was the probable reason?

3. Define three types of elasticity of demand. Indicate how you would

use information from recent research paid by your company that the

own price elasticity of your product is -1.2 and not -0.8 as previously

thought.

4. A magazine, in an article dealing with management, wrote, “When

he took over the furniture factory three years ago … [the manager]

realized almost immediately that it was throwing away at least

$100,000 a year worth of wood scrap. Within a few weeks, he set up

a task force of managers and workers to deal with the problem. And

within a few months, they reduced the amount of scrap to $7,000

worth [per year].” Was this necessarily an economically efficient

move? Explain your answer.

5. State the rule for optimum input allocation to produce a given level of

output at the lowest possible cost -when two inputs are variable and

the prices of the inputs are given- and explain why it makes sense.

6. An individual competitive firm’s short-run supply curve is the portion

of its marginal cost curve that equals or rises above the average

variable cost. Explain why.

7. If all the assumptions of perfect competition hold, why would firms

in such an industry have little incentive to carry out technological

change or much research and development? What conditions would

encourage research and development in competitive industries?
8. Describe the demand and marginal revenue curves faced by a firm in

a purely competitive market. Are they different from those faced by a

firm in oligopolistic competition? If so, why?

9. Although there is relatively little difference in the cost of producing

hardcover and paperback books, these books sell for very different

prices. Explain this pricing behavior.

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