Essay about Managerial Economics
Arcadia IMBA Module 2
University Wide Individual Assignment (UWIA)
12th July 2013
PROBLEM SET #1
1. Complete the following table and answer the accompanying questions.
a. At what level of the control variable are net benefits maximized?
Net Benefit is also profit. The formula for this is MB = MC. As seen in the table completed above, after applying the formula then net benefit is maximized where Q = 106.
b. What is the relation between marginal benefit and marginal cost at this level of the control variable?
Where marginal benefit is equal to marginal cost (MB = MC), net benefit is maximized
2. Arcadia recently instituted an in-house …show more content…
a. Find the inverse demand curve.
Qy = 1,000 – 20Py 20Py = 1000 – Qy Py = 50 – 0.05Qy.
To graph, if Py = 0, Qy = 1000; If Qy = 0, Py = 50
The inverse demand curve is Py = 50 – 0.05Qy.
b. How much consumer surplus do consumers receive when Py = $20?
Qy = 1,000 – 20Py Qy = 1,000 – 20 (20) Qy = 600
Consumer Surplus = ½ (Py*Qy) = ½ (50-20*600) = 9,000
When Py = $20 and Qy = 600 units, the consumer surplus is equal to 9,000.
c. How much consumer surplus do consumers receive when Py = $10?
To find Qy, assign Py = $ 10 in function Qy = 1,000 – 20Py Qy = 1,000 – 20 (10) Qy = 800
Consumer Surplus = ½ (Py*Qy) = ½ (50-10*800) = 16,000
When Py = $10 and Qy = 800 units, the consumer surplus is equal to 16,000.
d. In general, what happens to the level of consumer surplus as the price of a good falls?
Based on the calculation above where demand function is Qy = 1,000 – 20Py, when a price of the good falls, the consumer surplus increases.
7. You are an aide for the Senate Banking Committee Chairman. He comes to you with a bill that proposes setting limits on what ATM owners can charge non-account holders, over and above what banks