Homework Managerial Economics #1 Words

Managerial Economics
HOMEWORK #1
(Abednego)(Kezia) | () | (RA6047439)
Homework#1
Date: (15/08/2016)
Name / : (Abednego) (Kezia) () (RA6047439)
1A.
known :
Qs = 100+3P ; Qd = 620 10P
Equilibrium reached when Qs = Qd therefore
Qs = Qd
100+3P = 620 10P
3P+10P = 620 100
13P = 520
P = 520/13
P = 40
a. The price when the market is in equilibrium facing a demand Qd = 620-10P is 40
b. The equilibrium quantity is :
Qs
= 100 +3P
= 100 +3(40)
= 100 + 120
The equilibrium quantity for supply

is 220 units while for demand is 120
units
= 220 units
Qd
= 620 10P
= 620 10 (40)
= 620 400
= 120 units
c. Market clearing condition is a condition where quantity of supply same with

quantity demanded by the customer at certain level price. In the market clearing
condition there is no leftover supply and demand because supply and demand meet
at one point. The new classical economics assumes, that price will adjust up or
down to ensure the market clearing.
d.
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Homework#1
Price in ($)
Qd
Qs
0
620
100
Date: (15/08/2016)
10
520
130
20
420
160
30
320
190
40
220
220
50
120
250
60
20
280
70
-80
310
Market Equilibrium
80
70 y = 0,3333x - 33,333
Qd = Qs
60
Price in $
50
Qd
40
Qs
30
Linear (Qd )
20
Linear (Qs)
10
0
-200
-10
200
y = -0,1x + 62
400
600
800
Quantity (in units)
1B.
Known:
Earning per week
: $ 1,000/week
Standar deviation
: $ 500
z-score
:?
a. the probability earn $0 in a week : 2.28%

b. compute the z-score:
=

0 1,000
1000
=
=
= 2
500
500
After we compute the z-score, then the next step is see the values of the standard
normal distribution function. I used P 0 because in the questions it asked the
probability to earn $0 so the value is 0.0228. therefore the probability to get $0 is
2.28%
c. Would the z test be appropriate for a sample of 20 weeks?
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Homework#1
Date: (15/08/2016)
I dontt think z-test is appropriate because z-tests sample should be more than and
equsl 30 samples. I would recommend to use T-test because the required sample of
t-test is <30.
1C.First let me explain what is marginal analysis. Marginal analysis is an examination of

the additional benefit (called marginal benefit) of an activity compared with the
additional cost. In the diagram the Y axis show the satisfact that should be paid on and the
X asis show how many visit the patient should go. The marginal benefit shows the negative
relationship. It means, the higher the consumption, the less the customer feel the benefit.
On the other hand, the marginal cost is positive relationship. It means, the higher the
consumption, the higher cost you need. At first when we are going to check our blood
glucose, we are going to feel satisfy (the highest) because we know about our current state
of health and you feel its very worth to pay (low marginal cost). The next check you still
satisfy with the check up result but not like the first visit even though the marginal cost still
lower than marginal benefit until in the equilibrium point when MB=MC. But it still
doesnt matter. Until the check up shows thats the result is still okay and you feel like I
dont get any benefit (Marginal benefit is lower than marginal cost).
(graphics in the hardcopy)
2. Review the following statements using demand analysis
a. John statement is wrong. Increase in price will make the quanitty demanded decrease.
However it just move along the curve (from A to B) from one point to another point
and not shifting the curve down (in the first graph). Shifting caused by other
factors (price of subsitute product, outside Price itself.The second graph is showing
the statement of John.
Peter statement was right because increase in price does not shift the demand
curve. However, it will generate an excess supply situation. The graph is showing
when price increase (from P* to P2) the quantity demanded decreased (from Q* to Q2).
At the P2 level, the quantity supplied (Qs3) is more than the quantity demanded (Qd2
is more than Qs3) therefore excess supply happened. Excess supply also happened
when there is shift supply curve to the right (change in supply) or shift demand
curve to the left (change in demand).
b. Price elasticity in demand will be the same with 1. It means that change in price is
exactly offset by the same percentage change in quantity demanded. Also, when the
price elasticity equals to one it means the toal revenue function is maximize. When the
the price elasticity in the above of pivot point (more than 1) it means the price elasticity
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Homework#1
Date: (15/08/2016)
is elastic. Graph represent when the price goes (from P2 to P1) up the quanity demand
decrease (from Q2 to Q1) a lot and from the point of total revenue it shift to the left
(blue line to orange lineshowing not in the maximum total revenue. Also when the
price elasticity lower than one or below the pivot point it shows inelastic. It means when
the price going down (from P1 to P2) the quantity increase but not that much making
the total revenue decrease.
In the graph it represent when MR the same with 0 the total revenue will be the higher.
When goods is unitary elastic therefore it is a pivot point. It because the marginal
concept regarding the tangent point marginal revenue is at the cut mid point.
c. First Ill identitfy about the product. Ms. Chao Mian sells a noodle which is a staple
good and everyone will enjoy. When students income increase, they will increase
the consumption but not on usual goods or staple good like fried noodle but they
will change their consumption into steak or other expensive food that usually theu
cant enjoy. So, when the income increase the consumption towards fried noodle will
be lower. Therefore the elasticity of income will be negative because the product is
inferior goods.
Graph showing the negative realtionship because the elasticity income show the
negative sign which mean negative relationship, when income increase, consumer
tend to decrease the consumption.
3A.
Price in ($)
Qd (million pound)
Qs (million pound)
0
40
0
3
34
2
6
28
4
9
22
6
12
16
8
15
10
10
18
4
12
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Homework#1
Date: (15/08/2016)
Natural Fiber in America
P
20
18
4; 18
12; 18
y = 1,5x
Qd = Qs
16
10; 15
Price in $
14
12
8; 12
Qd (million pound)
16; 12
Qs (million pound)
10
6; 9
22; 9
Linear (Qd (million
pound))
4; 6
28; 6
Linear (Qs (million

pound))
4
2; 3
2
0
0
0; 0
34; 3
y = -0,5x + 20
10
20
30
40
40; 0
50
Quantity in Million Pounds
The formula for demand is = and we do an inverse so that we get = ,
is the intercept while is the slope. At first we have looking for the b Value or the
slope. B value got from
"" =
,so we get like this:
2 1
63
3
1
=
=
=
=
2 1
28 34
6
2
The b value is negative since it was depicted demand slope. Demand slope shows negative
relationship. The higher the price the lower the quantity demanded. After we get the b value
1
we can put into the formula. Since is the slope so that = . The next step is put
into the formula:
3 = 34
3 = 17
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Homework#1
3 + 17 =
20 =
Date: (15/08/2016)
So, the equation for the demand is P = 20 - Qd or if we want to change as the usual it
can be inverse into
Qd = 20 P
Qd = 20/ - P
Qd = 40 2P
To prove it, we can try to insert Price $3 as our example.
= 40 2 = 40 2(3) = 40 6 = 34
The result of quantity demanded was the same.
This also the same with Supply
The formula for supply is = + and we do an inverse so that we get = +

1
, is the intercept while is the slope. At first we are looking for the b value. b value
got from
, so we get like this:
b=
2 1
63
3
1
=
=
= =1
2 1
42
2
2
The b value is positive since it was depicted supply slope. Supply slope shows negative
1
relationship. The higher the price the higher the quantity supplied. Since is the slope so
1
that = . The next step is put into the formula:
= +
3= + 2
3= +3
33=
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Homework#1
0=
Date: (15/08/2016)
So, the equation for the demand is P = 3/2 Qs or if we want to change as the usual it can
be inverse into
-3/2 Qs = P
Qs = 2/3 P
To prove it, we can try to insert Price $3 as our example.
=
2
2
= (3) = 2
3
3
The result of quantity supplied was the same.
3B.

28 34
9
6
9
9
=
=
= (2)

63
22
3
22
22
9
=
= 0.8181 = |0,8181| = 0,82
11
( $9) =
The price elasticity of demand at price 9 shows that the demand is inelastic. When the price
increase resulting in an increase in total revenue. It shows in when the price rise from $6
to $9 the total revenue increase from $168 ($6 x 28) to $198 ($9 x 22).

28 34
12
6
3
1
=
= = 1

63
16
3
4
2
1
1
= 1 = 1
2
2
( $12) =
The price elasticity of demand at price 12 shows that the demand is elastic. When the price
increase resulting in an increase in total revenue. It shows in when the price rise from $9
to $12 the total revenue decrease from $198 ($6 x 22) to $192 ($12 x 16).
3C.
( $9) =

42
9
2
9
=
= = 1

63
6
3
6
The price elasticity of supply show that the demand is unitary elastic because the value
shows 1.
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Homework#1
Date: (15/08/2016)
12
12

42
2
=
=
=1

63
8
3
8
( $12) =
The price elasticity of supply show that the demand is unitary elastic because the value
shows 1.
3D. In the free market, an economic system in which prices are determined by unrestricted
competition between privately owned businesses, the price will referenced to USAs price .
USA will sell their price at $9. Therefore, the local supplied will produce 6 million and the
local demand will be 22 million pounds. But there is excess demand 16 million pounds. In
order to reduce the excess demand, USA government can do import 16 million so that the
price will increase and the demand will decrease matching with the quantity supplied.
Natural Fiber in America

20
18
4; 18
12; 18
y = 1,5x
Qd = Qs
16
10; 15
Price in $
14
12
8; 12
Qd (million pound)
16; 12
Qs (million pound)
10
6; 9
22; 9
Linear (Qd (million
pound))
4; 6
28; 6
Linear (Qs (million

pound))
4
2; 3
2
0
0
0; 0
34; 3
y = -0,5x + 20
10
20
30
40
40; 0
50
Quantity in Million Pounds
4.
Known :
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Homework#1
Date: (15/08/2016)
Qd = 100 P
Inverse P = 100 Qd
= (100 )
= 100 2
= 100 2
Total Revenue was at the maximum point where MR = 0, so to calculate the quantity that
maximize total revenue is
= 0
and the price should
100 = 2
50 = 100
100 2 = 0
=
100
2
= 50
= 100
= $ 50
The optimal total revenue is

=
= 50 50
= $2500
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Homework#1
Price
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
Qd
100
90
80
70
60
50
40
30
20
10
0
Date: (15/08/2016)
Total
Marginal Elasticity
Revenue
Revenue
100 QdQd^2
$0
$900
-90 0.111111
$1,600
-70
0.25
$2,100
-50 0.428571
$2,400
-30 0.666667
$2,500
-10
1
$2,400
10
1.5
$2,100
30 2.333333
$1,600
50
4
$900
70
9
$0
90
0
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Homework#1
Date: (15/08/2016)
Demand Curve
$120,0
$100,0
0; $100,0
10; 90
10; $90,0
Price
$80,0
20; $80,0
20; 70
30; $70,0
$60,0
Demand
40; $60,0
30; 50
50; $50,0
$40,0
60; $40,0
40; 30
y = -x + 100
Marginal
Revenue
70; $30,0
$20,0
Linear
(Demand)
80; $20,0
50; 10
y = -2x + 110
90; $10,0
$,0
0
20
40
60
80
100
Quantity
100; $,0
120
Linear
(Marginal
Revenue)
Total Revenue
$3000,0
50; $2500,0
Total Revenue
$2500,0
40; $2400,0
60; $2400,0
70; $2100,0
30; $2100,0
$2000,0
80; $1600,0
20; $1600,0
$1500,0
Total Revenue
y = 100Qd-100Qd^2
$1000,0
90; $900,0
10; $900,0
Linear (Total Revenue)
$500,0
$,0
0
0; $,0
20
40
60
80
100
100; $,0
120
Price
a) When the elasticity lower than one it means that it is inelastic therefore when price
increase the quantity will decrease but not that much and make the total revenue increase.
For this case, the company
b) When the elasticity more than one it means that it is elastic when the price increase the
quantity will decrease a lot. Therefore, the total revenue will decrease. In this case, the
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Homework#1
Date: (15/08/2016)
company has to lower the price (near the pivot point) so the quantity will increase a lot
making the total revenue increase
5.
Known:
Y = $10,000/Month
Pa = $5
Pb = $8
5A.
Maximum amount of good A :
5B.
10,000
=
= 2,000
Maximum amount of good B :
5C.
10,000
=
= 1,250
He cant consume on that quantity because :

1000 Pa + 650 Pb > $10,000
1000 ($5) + 650 ($8) > $10,000
$5,000 + $5,200 > $10,000
$10,200 > $10,000
It means that that consumption is exceed $200 from his actual income
5D.
He can consume on that quantity because:
750 Pa + 750 Pb < $10,000
750 ($5) + 750 ($8) < $10,000
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Homework#1
Date: (15/08/2016)
$3,750 + $6,000 < $10,000

$9,750 < $ 10,000
In this combination, he can save $250 because his consumption is lower than the actual
income.
5E.
Budget Line
1400
0; 1250
Product B in Units
1200
1000
800
$10,000
750; 750
1000; 650
600
$9,750
$10,200
400
Linear ($10,000)
200
y = -0,625x + 1250
0
0
500
1000
1500
2000; 0
2000
2500
Product A in Units
From the graphic above it shows that the blue line shows mr niu rou mian Afford to buy in
maximize one item (only buy product A without buy product B and the vice versa). The
second combination is 750 product A and 750 units products B showing the dot below the
blue line, there are saving or extra money. The last combination is showing the dot over
the blue line it means that more than budget. Therefore, Mr. Niu rou mian wont consume
at this level because it excesses the budget ($250)
5F.
In order to consume that combination, Mr Niu Rou Mian should get :
1,000 Pa + 750 Pb
1,000 ($5) + 750 ($8)
$5,000 + $6,000
$11,000
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Homework#1
Date: (15/08/2016)
6
a. Because of the price competitor (Adidas) increased therefore the quantity demanded of
Adidas is decreased. Decreased quantity in Adidas product made the quantity
demanded of Nike increase because Nike and Adidas is two brands providing in sport
shoes. So, when price of Adidas increase, the user will change to Nike. On the same
level of price (from P*) the demand curve will shift to the right (from D to D1)
showing change in demand. Therefore, the quantity demanded for Nike will increase
and excess demand will happen because the new quantity demanded (Qd2) over the
original quantity demanded (Qd*). Therefore, Nike needs new adjustment to make the
new equilibrium. Nike will increase the price (from P* to P2) so that it will decrease
the quantity demanded by the customer (Qd2 to Qd3). Customer will decrease the
consumption from Qd2 to Qd3. Increase in price making supply increase from Qs* to
Qs3. And then new equilibrium happened (E2).
b. Because of the raw material of Nike got a quota, making Nike production for its
production will decline. Because of the production decline, Nikes supply will decline
too. In the same price level, the decline of supply in Nike product will change the
supply curve shift left (from S to S2). Now at the same price level P*) the quantity
supply being decrease (from Qs* to Qs2). Shifting make the quantity supply lower
than the quantity demanded by the customer (only Qd* at the P*). This condition
name as excess demand. To adjust the new equilibrium, Nike company has to
increase the price (from P* to P2) which make the quantity supplies move to the right
(from Qs2 to Qs3) and the quantity demanded decrease (from Qd* to Qd3) making the
new equilibrium (E2).
c. The technology makes Nike more efficient and produce more making supply curve
shifting to the right (from S to S2). Now at the same price level (P*), the quantity
supply being increased (from Qs* to Qs2). Shifting make the quantity supply higher
than the previous because technology make it more efficient. This condition name as
excess supply, a condition where the supply is bigger than quantity demanded by the
customer (quantity demanded by customer at P* showed by Qd*). To adjust the new
equilibrium, Nike company has to decrease the price (From P* to P2) which make the
quantity supply decrease (Qs2 to Qs3) and the quantity demanded increased (from
Qd* to Qd3 because the price being decrease) bring the new equilibrium (E2).
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Homework#1
Date: (15/08/2016)
d. Because of the bad publicity of Nike, there is change in demand. Assumed the price
still the same but the demand curve will shift to the left (from D to D2) indicating
decrease in demand. Shifting make the quantity demand lower (from Qd* to Qd2) than
the previous one assuming the supply still (at P* = Qs*). The condition will be excess
in supply because the quantity of supply is greater than the quantity demanded. Nike
needs to adjust the curve by lowering the price (from P* to P2) which making the
quantity demanded increase (from Qd2 to Qd3) and supply decrease to (from Qs* to
Qs3) and bring the new equilibrium (E2).
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Managerial Economics

The equilibrium quantity for supply

c. Market clearing condition is a condition where quantity of supply same with

Quantity (in units)

a. the probability earn $0 in a week : 2.28%

1C.First let me explain what is marginal analysis. Marginal analysis is an examination of

Natural Fiber in America

Linear (Qs (million

Quantity in Million Pounds

The formula for demand is = and we do an inverse so that we get = ,

slope. B value got from

,so we get like this:

The result of quantity demanded was the same.

This also the same with Supply

The formula for supply is = + and we do an inverse so that we get = +

, so we get like this:

that = . The next step is put into the formula:

The result of quantity supplied was the same.

Natural Fiber in America

Linear (Qs (million

Quantity in Million Pounds

and the price should

The optimal total revenue is

Linear (Total Revenue)

Maximum amount of good B :

He cant consume on that quantity because :

$3,750 + $6,000 < $10,000

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