Learning Module #3
Practice Questions
1) Suppose a manager wishes to find the optimal level of two activities X and Y, which yield the total benefits
presented in the table below. The price of X is $40 per unit, and the price of Y is $100 per unit.
a. The

Answers to Practice Questions
Exam #2
Thirty data points on Y and X are employed to
estimate the parameters in the linear relation
Y = a + bX
The equation of the regression line is:
^
Y = 93.54 3.25 X
Comment on the significance of the parameter estimates

Exam #1 Review
Demand
Qd = 15 2P +0.05M + 0.10R
Normal. The coefficient on M is positive.
Substitutes. The coefficient on R is positive.
If average monthly income is $1,500 and the monthly
rental rate for three-bedroom apartments is $700, then
the demand

Learning Module #12
Practice Questions
1. The Tampa Tribune and the St. Petersburg Times compete for readers in the Tampa Bay market for
newspapers. Recently, both newspapers considered changing the prices they charge for their Sunday
editions. Suppose th

total monthly explicit costs of Computer Compatriots? b. What are the firms total
monthly economic costs? Solution a. Total explicit cost refers to all out-of-pocket
expenses. The total monthly explicit costs of Computer Compatriots are b. Total
economic

becomes increasingly less productive on average. Finally,stage III of production is
defined along the TPL function for labor input usage in excess of 0F, where MPL <
0. As it is apparent that production will not take place in stage I of production
because

is the first partial derivative of the production function with respect to labor
(Q/L), which is assumed to be positive. Marginal rate of technical substitution
(MRTSKL) Suppose that output is a function of variable labor and capital input, Q =
f(K, L). T

constant and 0 <a< 1, 0 <b< 1. a. Derive an equation for an isoquant with K in
terms of L. b. Demonstrate that this isoquant is convex (bowed in) with respect to
the origin. Solution a. An isoquant shows the various combinations of two inputs
(say, labor

combinations is possible. While Figure 5.3 explicitly shows only one such isoquant
at Q = 122 for Equation (5.4), it is easy to imagine that as we move along the
production surface, an infinite number of such isoquants are possible
corresponding to an inf

must make economic sense. The value of the constant term, for example, must be
restricted to some positive value, b0 > 0, since total fixed cost must be positive. To
determine the restrictions that should be placed on the remaining coefficient
values, con

expectation of greater productivity that compels many firms to underwrite on-site
employee training and off-site continuing education programs. The relationship
between increased per-worker productivity and reduced perworker cost at fixed
labor prices ass

constant. Related to marginal cost is the more general concept of incremental
cost. While marginal cost is the change in total cost given a change in output,
incremental cost is the change in the firms total costs that result from the
implementation of de

theory of cost is closely related to the underlying production technology. We will
begin by assuming that the firms short-run total cost (TC) of production is given
by the expression (6.1) As we discussed in Chapter 5, the short run in production
is defin

Strictly speaking, it is incorrect to assert that marginal cost is the rate of change in
total cost with respect to a change in output unless total cost has been properly
specified. The total cost equation TC = PKK + PLL is a function of inputs K and L,
a

derivatives of output with respect to variable labor input? 5.7 Suppose that the
total product of labor curve exhibits increasing, diminishing and negative marginal
product. Describe in detail the shapes of the marginal product and average
product curves.

any other productive input), the average product of labor cannot be negative
because labor and output can never be negative. THE THREE STAGES OF
PRODUCTION Figure 5.2 can also be used to define the three stages of production.
Stage I of production is defi

1, then Equation (5.10) is clearly positive, since Lb-1 > 0. A positive marginal
product of labor is expected, since we would expect output to increase as
incremental units of a variable input are added to the production process. Our
concern is with the c

that ATC is minimized at this output level, the second-order condition requires
that the second derivative be positive, that is, At Q = 10, average total cost is The
marginal cost equation is Marginal cost at Q* = 10 is Not surprisingly, MC = ATC at
the o

has some interesting implications for production theory. Problem 5.4. The Cobb
Douglas production function is widely used in economic and empirical analysis
because it possesses several useful mathematical properties. The general form of
the CobbDouglas p

by the firm to produce that good or service. In spite of this, because of certain
desirable mathematical properties, perhaps the most widely used functional form
to approximate the relationship between the production of a good or service and
a set of prod

value of the next best alternative use of a resource. What distinguishes explicit
costs from implicit costs is their visibility to the manager. Explicit costs are
sometimes referred to as out-of-pocket costs. Explicit costs are visible
expenditures associ

C. An Introduction to Mathematical Methods in Economics. New York: McGrawHill, 1980. Henderson, J. M., and R. E. Quandt. Microeconomic Theory: A
Mathematical Approach, 3rd ed. New York: McGraw-Hill, 1980. Maxwell, W. D.
Production Theory and Cost Curves.

is illustrated in Figure 5.6. Mathematically, linear isoquants are characterized by
the dK dL MP MP L K = - Q L Q K dK dL = dQ Q L dL Q K = dK +
= 0 dK dL MP MP MRTS L K =- = < KL 0 D D K L MP MP L K = - - = MP K
MP L K L D D Isoquants 215 conditions dK/

does a linear isoquant illustrate? 5.17 Isoquants cannot intersect. Do you agree?
Explain. 5.18 The degree of convexity of an isoquant determines the degree of
substitutability of factors of production. Do you agree? Explain. 5.19 Suppose that
output is a

1/10/2016
Introduction
Chapter Overview
We start this course by focusing on defining
managerial economics, and illustrating how it
is a valuable tool for analyzing many business
situations.
Introduction to
Managerial Economics
1-2
The Manager
Introductio

1/16/2016
Introduction to
Managerial Economics
Introduction
Chapter Overview
We start this course by focusing on defining
managerial economics, and illustrating how it
is a valuable tool for analyzing many business
situations.
1-2
The Manager
Introductio

Linear Equation
Y = 2x + 4
y-intercept (when x = 0)
Independent Variable
Slope
Dependent Variable
Domain
X
Y
-2
Y
-2
0
0
4
-1
4
X
Range
1
0
2
2
6
8
1
The Cartesian Coordinate System
Two perpendicular lines one of which is horizontal
Quadrant II
(-,+)
(+,

1. Suppose the own price elasticity of demand for good X is -4, its income elasticity is -2, its
advertising elasticity is 3, and the cross-price elasticity of demand between it and good Y is 2.
Determine and explain how much the consumption of this good

Learning Module #6
Practice Question
1. Suppose a savings and loan association wants to forecast the delinquency rate on home
mortgages. Using monthly data, the following trend model is estimated
DRt = a + bt
where DRt = the percentage of mortgage payment

workers are added to the production process, the amount of land allocated to
each worker becomes so small that we might even expect zero marginal product;
that is, total output has been maximized. It is even conceivable that beyond the
point of maximum pr

scale (IRTS) The case in which the output of a good or a service increases more
than proportionally to a proportional increase in all factors of production used to
produce that good or service. Since all inputs are variable, IRTS is a long-run
production

change in total output, it must be the case that (5.20) Rearranging Equation (5.20)
yields For instantaneous rates of change, Equation (5.20) becomes (5.21) Equation
(5.21) may also be derived by applying the implicit function theorem to Equation
(5.2).Ta

production, TC Q TFC TVC Q ( ) = + ( ) TC P K P L = + K L 0 TC f g K L = [ ] ( ) 0 , ShortRun Cost 237 total variable cost is an increasing function of the level of output.
Total cost is the sum of total fixed and total variable cost. KEY RELATIONSHIPS:
A