Problem set 1 Essay

787 Words Oct 22nd, 2014 4 Pages
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?
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c. What is the cross- price elasticity of demand between its product and its rival’s product?

7. Suppose there are two markets, T and L, where QT = 150 (8 – PT) and QL = 180 (5 – PL) and PT=4.6 and PL =3.1; calculate price elasticity for the two markets.

8. Suppose your firm faces a demand curve of (P = 90 - .30Q) and the marginal cost of production is $10/ unit. Find the profit- maximizing output and price. Is this outcome on the elastic, inelastic, or unitary elastic part of the demand curve? What are your profits if you ignore any fixed costs?

9. Should a company ever produce an output if the managers know it will lose money over the period? Explain (there is more than one answer here).

10. For your industry, describe a branded product and how that helps the producer charge a premium price. If there are no branded products, explain why producers are unable to charge a premium price.

11. On the basis of historical data, Richard Tennant has concluded, “The consumption of cigarettes is . . . [relatively] insensitive to changes in price. . . . In contrast, the demand for individual brands is highly elastic in its response to price. . . . In 1918, for example, Lucky Strike was sold for a short time at a higher retail price than Camel or Chesterfield (5%) and rapidly lost half its

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