ECON 106 HW1

ECON 106 HW1 - Econ 106 Managerial Economics Jinmao Xu...

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Unformatted text preview: Econ 106 Managerial Economics Jinmao Xu Homework 1 4715033 Summer 2011 1. As the oil production went down by 1.21 million barrels per day, and that's a 5% reduction in the world's supply of crude oil, therefore, as the supply of crude oil went down, the supply of gasoline also went down at the same time, this causes the price of gasoline to increase by certain amount. As the price of gasoline raises, the demand of small cars also increase, because small cars consume less amount of gasoline, thus, the price of small cars will be increase; so we can conclude that, the demand of SUVs will absolutely drop, so the price of SUVs will be decreased. (The graphs below are the impact in the 3 markets) 2. I disagree with this argument. Because this argument confuses a movement along the curve with a shift in the curve. The argument states that, higher cigarette prices will reduce the demand for cigarettes. This is not true, because higher cigarette prices will only reduce the quantity demand , not demand . So the demand curve should not shift to the left, but will move up along the demand curve instead. 3. (a) For an individual, to pursue an MBA degree is actually an investment and valid throughout his/her life. But he/she has to estimate the net present value and opportunity cost before making the decision whether or not to pursue an MBA degree. It is rational for an individual to pursue an MBA degree if the salaries that he/she would earn after an MBA of 2 years, is higher or equal to the future value of all the costs incurred to pursue the course as well as the salaries that he could have earned in that time span of 2 years; and if the opportunity cost of not doing an MBA is higher than the opportunity cost of not working full time for a period of 2 years. (b) The number of the top 30 MBA programs applicants will fall in case of the starting salaries of managers with MBA degrees remained constant but salaries of manager without such degrees increased by 15 percent as it would lower the opportunity cost of not pursuing a MBA. (c) Over the past two years, I think admissions to MBA programs has increased, because during the past two years, most companies were laid off employees, hence, those employees tend to get higher education in order to receive jobs afterward. So more and more business schools open to admit more students. 4. "The market for Lemons: Quality Uncertainty and the Market Mechanism" is a paper 4....
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ECON 106 HW1 - Econ 106 Managerial Economics Jinmao Xu...

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