Demand and Elasticity - Part 1 Section (2pm or 3:30pm): Please name your file using the following guide "Demand_exercise_2pm_group1.xls" (Changing the section (2pm vs 330pm) & group number). Members of Group (alphabetical by last name): Clark Goit
INSTRUC

In-class cost function exercise
Chap. 5, problem #4
You estimate your demand function to be:
C(Q) = 50 + 25Q + 30Q2 + 5Q3
Based on this information, determine:
1) The fixed cost of producing 10 units of output
2) The variable cost of producing 10 units of

PRACTICE MID-TERM QUESTIONS
MANEC 387
MULTIPLE CHOICE
1.
a)
b)
c)
d)
The law of demand states that, holding all else constant:
as price falls, demand will fall also.
as price rises, demand will also rise.
price has no effect on quantity demanded.
as price

MANEC 387
Practice Final Exam
1. An industry is comprised of 20 firms, each with an equal market share. What is the 4firm concentration ratio of this industry?
a) .2.
b) .4.
c) .6.
d) .8.
2.
a)
b)
c)
d)
Oligopoly differs from monopoly as follows:
Oligopol

PRACTICE MID-TERM QUESTIONS
MANEC 387
MULTIPLE CHOICE
1.
a)
b)
c)
d)
The law of demand states that, holding all else constant:
as price falls, demand will fall also.
as price rises, demand will also rise.
price has no effect on quantity demanded.
as price

PRACTICE MID-TERM SOLUTIONS
MANEC 387
MULTIPLE CHOICE
1. D
2. B
3. C
4. B
5. A
6. D
7. C
8. B
9. A
10. A
11. E
12. D
13. B
14. B
15. D
16. C
17. B
18. C
19. B
SHORT ANSWER
1.
a. The demand for oranges does not change, but supply shifts left. This implies

Quiz #3 Production Functions
1) Currently the wage rate is $6/hr and capital is rented at $12/hr. Assume the
marginal product of labor is 50 units of output per hour and the marginal product
of capital is 75 units of output per hour.
a) Is the firm using

Quiz #3 Production Functions
1) Currently the wage rate is $6/hr and capital is rented at $12/hr. Assume the
marginal product of labor is 50 units of output per hour and the marginal product
of capital is 75 units of output per hour.
a) Is the firm using

Quiz #3 ManEc 387
1.) The demand curve for a firm is given by Qx = 1,000 5Px + .02Py. Calculate the
cross-price elasticity when Px = $150 and Py = $200. (5 pts)
The formula for Cross-price elasticity = (dQx/dPy) * (Py/Qx)
- note that it is all about how t

In-Class Group Exercise
A firms production function is given by Q = K 1 2 L1 2 and its capital is fixed at 1 unit.
a. Calculate the average product of labor when 9 units of labor are utilized.
b. Calculate the marginal product of labor when 9 units of lab

In-Class Group Exercise
A firms production function is given by Q = K 1 2 L1 2 and its capital is fixed at 1 unit.
a. Calculate the average product of labor (AP L) when 9 units of labor are
utilized.
Q = K L = 1 9 = 3 units produced
APL = Total Q / Total

Chapter 3: Answers to Questions and Problems
1.
a. When P = $12, R = ($12)(1) = $12. When P = $10, R = ($10)(2) = $20. Thus,
the price decrease results in an $8 increase in total revenue, so demand is elastic
over this range of prices.
b. When P = $4, R =

Chapter 7: Answers to Questions and Problems
1. The four-firm concentration ratio is,
$175, 000 + $150, 000 + $125, 000 + $100, 000
C4 =
= 0.55 .
$1, 000, 000
2.
3. The elasticity of demand for a representative firm in the industry is 1.5, since
0.9
0.9
0

Chapter 8: Answers to Questions and Problems
1.
a.
b.
c.
d.
e.
f.
g.
h.
7 units.
$28.
$224, since $32 x 7 = $224.
$98, since $14 x 7 = $98.
$126 (the difference between total cost and variable cost).
It is earning a loss of $28, since ($28 -$32) x 7 = - $

Chapter 9: Answers to Questions and Problems
1.
a. D2.
b. D1.
c.
i. $20.
ii. 0 units.
iii. $20 to $50.
2.
3.
a.
b.
c.
d.
e.
125 units.
100 units each.
The leader produces 150 units and the follower produces 75 units.
150 units.
i. 75 units.
ii. About 112.

Chapter 10: Answers to Questions and Problems
1.
a. Player 1s dominant strategy is B. Player 2 does not have a dominant strategy.
b. Player 1s secure strategy is B. Player 2s secure strategy is E.
c. (B, E).
2.
3.
a. Player 1s optimal strategy is B. Playe

Manec 387 Group Projects
Professor David Benson
Each group will be responsible for preparing an analysis of a case or economic situation. In your group,
you will choose a strategic problem facing an actual firm and then conduct economic and strategic anal

In-class cost function exercise
Chap. 5, problem #4
You estimate your demand function to be:
C(Q) = 50 + 25Q + 30Q2 + 5Q3
Based on this information, determine:
1) The fixed cost of producing 10 units of output
2) The variable cost of producing 10 units of

Rivalry in Oligopoly
Situated on a continuum between markets of one firm (monopoly) and markets of many firms
(perfect competition) are markets of a few firms. These markets are called oligopoly. In
oligopolies the number of firms ranges from two (duopoly

Quiz #3 ManEc 387
1.) The demand curve for a firm is given by Qx = 1,000 5Px + .02Py. Calculate the
cross-price elasticity when Px = $150 and Py = $200. (5 pts)
a.) Is good Y a substitute or complement for good X? (2.5 pts)
2.) Analysts at your firm have

1
Frozen Yogurt Oligopoly
Provo Frozen Yogurt Market Situation
Does it seem like a new frozen yogurt store is opening up on every block? Weve noticed
the reemergence of the frozen yogurt trend and were intrigued by its rapid growth. In the
Provo area, it

Elasticity and Revenue Maximization with Exponential Functions
David J. Bryce
There are some mathematical results that you may find interesting or want to be aware of
with respect to exponential demand functions. Exponential functions have some very nice

Math Review
ManEc 387 Economics of Strategy
Marriott School BYU
1
Review of Some Details of Algebra
Generally, the most common errors in calculus are errors in algebra. Hopefully, you still feel
comfortable with the algebraic concepts of Math 110. In gene

Manec 387 Group Projects
Professor David Benson
Each group will be responsible for preparing an analysis of a case or economic situation. In your group,
you will choose a strategic problem facing an actual firm and then conduct economic and strategic anal

Adverse Selection Situation where individuals have hidden characteristics and in which a selection
process results in a pool of individuals with undesirable characteristics.
Affiliated (Or Correlated) Value Estimates Auction environment in which bidders d

Elasticity Practice Problems and Notes: Chapter
3
Impact of a change in a competitors Price
- According to an FTC report by Michael Ward, AT&Ts cross price elasticity of demand
for long distance services is 9.06.
- If competitors reduced
their prices by 4

Chapter 9 Notes:
Oligopoly environment:
- Relatively few firms, usually less than 10
o Duopoly-two firms
o Triopoly-three firms
- The products firms offer can be either differentiated or homogeneous.
- Firms decisions impact one another.
- Many different