Managerial Economics, 4th level, Arabic section Assignment (chapters 3, 5, 8, 10) | DOWNLOAD FOR QUALITY SCORES

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I. Problems (show your calculations) (2 points each, total=8 points) 1. The demand for company X's product is given by Qx = 12 – 3Px + 4Py. Suppose good X sells for $3.00 per unit and good Y sells... for $1.50 per unit. a. Calculate the cross-price elasticity of demand between goods X and Y at the given prices. b. Are goods X and Y substitutes or complements? a. Qx = 12 − 3(3) + 4(1.5) = 9, so EQx ,Py=4( 1.5 9 )= 2 3 . b. They are substitutes. 2. To open a new business, a manager must obtain a license from the city for $20,000. The license is transferable, but only $3,000 is refundable in the event the firm does not use the license. a. What are the firm's fixed costs? Sunk costs? b. Suppose the manager obtains a license but then decides against opening the business. If another firm offers the manager $2,000 for the license, should the manager accept the offer? a. Fixed costs are $20,000. Sunk costs are $17,000. b. No. The manager can get a refund of $3,000 from the city, and this exceeds the $2,000 that it would have earned by selling the license to another firm. 3. You are a manager in a perfectly competitive market. The price in your market is $35. Your total cost curve is C(Q) = 10 + 2Q + 0.5Q2 . a. What level of output should you produce in the short run? b. What are your profits in the short run and in the long run? a. Setting price equal to marginal cost implies $35 = 2 + Q. The short-run output level is Q = 33. b. Profits are ($35)(33) − [10 + 2(33) + .5(33)2 ] = $534.5. New firms will enter and price will be lowered until profit is zero. 4. You are the manager of Copies Are Us firm. The only other copy store in town, the Carbon Copy firm, recently got bids on adding a color copier. You must decide whether to obtain a color copier, but you can base your decision on what your rival does. If your rival adds a color copier and you don't, you expect your profits to fall by $1,000 per week and its profits to rise by $1,500 per week. Conversely, if you add the color copier and your rival does not, your profits will increase by $1,500 per week and your rival's profits will fall by $1,000 per week. However, if you both do the same thing (add color copies or not), you each expect profits to stay at their current level (i.e. the change in profits is zero). Draw the extensive form of this game. What is the subgame perfect equilibrium? [Show More]

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