Economics: Problem Set
ECP 6705 – First Problem Set Fall, 2014
Name or Names:
(if a group of two)
1. Write a memo to UWF COB Dean Tim O’Keefe explaining why you believe offering a tuition increase for the next semester MBA students will increase total revenue (assume that he has heard of elasticity, but is no expert on the subject).
2. Mentone Cabins recently reduced price by 20 percent and saw volume increase by 10 percent. Should the owners reduce price further?
3. The DMC short-run average cost function in 2012 was (AC = 3 + 4Q)
a. Give the short-run total cost function
b. Derive the marginal cost function
c. If the current price is $3, is the firm making profit or loss? Briefly explain.
4. The lumber industry was hit hard by the downturn in housing starts in 2010 and 2011. Prices plunged from $290 per thousand board feet to less than $200 per thousand board feet. Many observers believed this price decrease was caused by the slowing of new home construction because of the glut of unsold homes on the market. Was this price decrease caused by a shift in the supply or demand curve (include a graph)?
5. Use the dangerous formula (MC = P ( 1 + 1/η ) to address the following. Suppose that a manufacturer sells a product through an upscale boutique and, with a different brand name, through a discount retailer. The elasticity of demand at the boutique is -1.2, and at the discount retailer it is -2.6. If the optimal price at the boutique is $85, what price (PD) should be charged at the discount retailer?
6. After a careful statistical analysis, the Chidester Company concludes the demand function for its product is (Q = 500 - 30P + 10Pr + 0.10I) where Q is the quantity demanded of its product, P is the price of its product, Pr is the price of its rival’s product, and I is per capita disposable income (in dollars). At present, P = $10, Pr = $20, and I
Name or Names:
(if a group of two)
1. Write a memo to UWF COB Dean Tim O’Keefe explaining why you believe offering a tuition increase for the next semester MBA students will increase total revenue (assume that he has heard of elasticity, but is no expert on the subject).
2. Mentone Cabins recently reduced price by 20 percent and saw volume increase by 10 percent. Should the owners reduce price further?
3. The DMC short-run average cost function in 2012 was (AC = 3 + 4Q)
a. Give the short-run total cost function
b. Derive the marginal cost function
c. If the current price is $3, is the firm making profit or loss? Briefly explain.
4. The lumber industry was hit hard by the downturn in housing starts in 2010 and 2011. Prices plunged from $290 per thousand board feet to less than $200 per thousand board feet. Many observers believed this price decrease was caused by the slowing of new home construction because of the glut of unsold homes on the market. Was this price decrease caused by a shift in the supply or demand curve (include a graph)?
5. Use the dangerous formula (MC = P ( 1 + 1/η ) to address the following. Suppose that a manufacturer sells a product through an upscale boutique and, with a different brand name, through a discount retailer. The elasticity of demand at the boutique is -1.2, and at the discount retailer it is -2.6. If the optimal price at the boutique is $85, what price (PD) should be charged at the discount retailer?
6. After a careful statistical analysis, the Chidester Company concludes the demand function for its product is (Q = 500 - 30P + 10Pr + 0.10I) where Q is the quantity demanded of its product, P is the price of its product, Pr is the price of its rival’s product, and I is per capita disposable income (in dollars). At present, P = $10, Pr = $20, and I