Managerial economics Essay

1. If a quick burn downs its expense for Product X, TR go forth emergence. Un trusted, follow r eventideue = Price Quantity Sold. The price piece of cake of remove tells us there ar two eects, first is price eect. If price append, each unit sold sells for a higher(prenominal) price, which tends to raise revenue. Second is heart of money eect. If price sum up, fewer units are sold, which tends to trim revenue. This is determines by which price eect or the quantity eect is stronger2. When MR > MC, MP ( peripheral profit) entrust be absolute. True, for each unit sold, peripheral profit equals fringy revenue (MR) minus borderline cost (MC). Then, if MR is great than MC at near level of output, marginal profit is positive and thus a greater quantity should be produced.3. If a 10% increase in price leads to a 5% increase in TR, take on must be elastic. False, if an increase in price causes an increase in entireness revenue, indeed penury can be give tongue to to be inflexible, since the increase in price does not defend a large impact on quantity solicited.4. If the cross price elasticity is positive for two near(a)s X and Y, X and Y must be complements. False, if the goods are complements, the value will be negative because quantity demanded increases when the price of complement falls. Example, if the price of petrol abates to RM2 a litre, sales of cars would increase.5. Maximizing TR is never a desirable goal for a unattackable. True, profit is the difference mingled with a firms total revenue and its total prospect cost. Total revenue is the amount of income earned by selling products. unless it does not include the total opportunity be of all inputs into the intersection process. Hence, it is never a desirable goal for a firm. Firm should see to it maximizing Profit instead of TR.6. The to a greater extent nonresilient the demand, the more than possible it is that a firm can have regular price increases. True, if firm have regular increase in price ( nominate to Appendix 1) from P4 to P5, the minify in the quantity demanded is relatively small (from Q4 to Q5). It means that, the more inelastic the demand, the percentage qualify in quantity demanded is less than percentage change price. Hence, firm can have regular price increases.7. If EP = -1.25 for sort out A, and EP = -.375 for mathematical group B, and a firm uses price discrimination, Group A should pay a higher price than Group B. False, Group A is elastic and Group B is inelastic. The consumers in the inelastic sub- trade will be aerated the higher price, and those in the elastic sub market will be charged the glower price. So Group B should pay higher price. ravish refer to Appendix 2 for illustration.8. A consumer spends 1% of her income on best A and 25% on Good B. Price Elasticity of solicit should be greater for Good B. True, if the consumer spends less of her income, means that Good A is a necessity good and spe nds more of her income means that Good B is a luxury good. Luxuries tend to more elastic than necessities as there are more options for consumer.9. Income elasticity for an outclassed good is always negative. True, because quantity demand falls as income rises. Quantity demanded and income move opposite commissionings, modest goods have negative elasticity.10. The more inelastic the demand, the flatter the demand thin. False, inelastic demand have steeper distort because quantity demanded does not act strongly to price changes. Please refer to Appendix 3 for illustration. For a inelastic demand product such as cigarettes, when price increase by 10%, the quantity demanded will fall by 3.8%. 11. If demand goes from P = 1850 .05Q to P = 1700 .05Q, Demand has change magnitude. False. If P = 1850 .05Q then Qd= 37000-20P and if P = 1700 .05Q, then Qd= 34000-20P. The demand curve stagger to left and hence, the demand decreases. Please refer to Appendix 4 for illustration 12. If TC goes from TC = 1250 + .5Q to TC = 1200 + .6Q, FC have gone up and VC have gone down. False, because TC=TFC+TVC. From the equation supra shows that, the FC decreases leads TFC to fall from 1250 to 1200 and the VC increases leads TVC to gone up from 0.5 to 0.6. Part B (Explain in a short Essay (not more than 1 page each))1) Define demand, dispute various determinants of demand.Demand is the quantities of good or process that consumers are involuntary to buy at various prices within some given termination of time. Holding all other computes constant, the price of a good or service increases as its demand increases and vice versa. When factors other than price changes, demand curve will shift. There are 5 determinants of the demand curve. frontmost factor is price of related goods. A good or service can be related to another by being a substitute or complement. If price of a substitute changes, we expect the demand for the good under consideration to change in the same re moveion as the change in the substitutes price. For instance, if the price of cocoa rises, the demand for tea should increase. The complement goods are the goods that can be employ together.Price of complement and demand for the other good are negatively related. Example, if the price of sugar increases, the demand for coffee will fall. Second factor is income, as great deals income rises, it is reasonable to expect their demand for a good to increase and vice versa, the demand curve will shift right. A fall in income will lead to a decrease in demand for normal goods. Goods whose demand varies inversely with income are called inferior goods. Third determinant is future expectation. If enough, buyers expect the price of a good rises in future, the current demand will increase. Also, if consumers current demand will increase, they expect higher future income. For example, in 2005 housing prices rose, but pile bought more because they expected the price to continue to go up. This drove prices even further, until the bubble burst in 2006 (Stafffullcoll.edu. n.d.).Forth factor is tastes and preferences. This is the desire, emotion, or preference for a good or service. If consumer preference is favorable change will leads to an increase in demand. Likewise, unfavorable change leads to a decrease in demand. Example, companies spend thousands on advertising to make you feel strongly that you inadequacy a product. Last determinant is number of buyer. If the number of buyers in market rises, the demand increases. For example, the housing bubble case. Low-cost mortgages increased the number of people who were told they could afford a house. The number of buyers actually increased, driving up the demand for housing. When they found they really couldnt afford the mortgage, especially when housing prices started to fall, they foreclosed. This decreased the number of buyers, and demand also fell.2) Briefly explain the concept of law of diminishing returns? Discuss i ts assumption and importance? The law of diminishing marginal returns means that the productivity of a variable input declines as more is used in short production, holding one or more inputs quick-frozen. This law has a direct behavior on market append, the supply price, and the law of supply. The main reasons the marginal product (MP) of this variable input declines is the improve input. The fixed input imposes a capacity constraint on short-run production. For example, in a sandwich production, the surface of the sandwich-producing kitchen and equipment is fixed. The party employs additional workers, the kitchen becomes progressively crowded. Only so many workers can use the sandwich-preparation counter to trick up sandwich.While adding additional workers do increase total sandwich production, the exceptional production attributable to these workers is certain to fall as the capacity of the fixed input is limited. In fact, adding too many workers actually dissolvents in a negative marginal product, hence, total product falls. The law of diminishing marginal returns is reflected in the shapes and slopes of the total product, marginal product, and come product curves. The most pregnant of these being the negative slope of the marginal product curve. Appendix 5 shows the graph three product curves. The total product (TP) curve shows that the total number of Sandwich fellowship produced per hour for a given amount of labor. The increasingly flatter slope of the TP is attributable to the law of diminishing marginal returns. Also, the marginal product curve indicates how the total production of Sandwich Company changes when an extra worker is hired. The negatively-sloped portion of the MP curve is a direct embodiment of the law of diminishing marginal returns.Further, the average product curve indicates the average number of Sandwich Company produced by workers. The negatively-sloped portion of the AP curve is indirectly caused by the law of dimin ishing marginal returns. As marginal product declines, due to the law of diminishing marginal returns, it also causes a decrease in average product. 3) Explain the various economies and diseconomies of outstrip? Economies of weighing machine are the cost advantages that a business can exploit by expanding the de outstrip of production. The effect is to reduce the long run average (unit) costs of production. Economies of outgo have brought down the unit costs of production and aliment through to lower prices for consumers (appendix 6). It could be achieved by buying new machinery, and physique a bigger factory. There are two types of economy of scurf and depending on the particular characteristics of an diligence, some are more important than others.Firstly, indispensable economies of scale are a product of how efficient a firm is at producing, that is specific to individual firm. Example, advantages are enjoyed by expansion. Next, external economies of scale occur outsi de of a firm but within an industry. Example, industrys scope of operations expand due to better transit network, will result a decrease in cost for a company working within industry, , external economies of scale have been achieved. Diseconomies of scale are the forces that cause larger firms to produce goods and services at increased per unit costs. The concept is the opposite of economies of scale to a situation which economies of scale no longer function for a firm. Rather than experiencing continued fall costs per increase in output, firms see an increase in marginal cost when output is increased (appendix 6).When a firm expands its production scale beyond a certain level, it suffers certain disadvantages. These disadvantages are called internal diseconomies of scale. The result of these diseconomies of scale is a fall run average cost. There are a number of factors that might give rise to inefficiencies as the size of the firm grows. As the size of the firm grows beyond a ce rtain level, organization, control and planning is needed. This makes the managerial responsibilities more difficult. Delegation of the management functions to lower personnel becomes very common. Since the lower personnel lack the adequate project to undertake the task, it may result in low output at higher cost. All these lead to an increase in the long-run average cost.Further, the external diseconomies of scale are beyond the control of a company increases its total costs, as output in the rest of the industry increases. The increase in costs can be associated with market prices increasing for some or all of the factors of production. For instance, high competition for labor, when there is more firms in industry, there will be increased demand for labor, making the best workers harder to keep (Keat and Young, 2009).ReferencesStafffullcoll.edu. n.d. DETERMINANTS OF DEMAND. online Available at http//staffwww.fullcoll.edu/fchan/macro/1determinants_of_demand.htm Accessed 28 Mar 201 4. Keat, P.G. and Young, P.K.Y., 2009 managerial Economics 6th ed. Economic Tools for Todays Decision Makers. Pg. 266-268