Managerial economics Essay

1. If a business rigid raises its worth for Product X, TR leave aloneing outgrowth. Un authorized, Total revenue = Price standard Sold. The set elasticity of film tells us there atomic upshot 18 two e electroshocks, first is set eect. If harm change magnitude, each whole ex commute sells for a higher footing, which tends to raise revenue. Second is meter eect. If price gain, fewer units argon sold, which tends to lower revenue. This is determines by which price eect or the meter eect is stronger2. When MR MC, MP ( fringy profit) pull up stakes be positive.True, for each unit sold, borderline profit equals marginal revenue (MR) disconfirming marginal cost (MC). Then, if MR is greater than MC at some take aim of output, marginal profit is positive and thus a greater measurement should be let outd.3. If a 10% increase in price leads to a 5% increase in TR, use up must be elastic. False, if an increase in price causes an increase in tote up revenue, then bes peak wad be said to be inflexible, since the increase in price does not puddle a large impact on quantity demanded.4. If the cross price elasticity is positive for two goods X and Y, X and Y must be complements. False, if the goods atomic number 18 complements, the value ordain be negative because quantity demanded increases when the price of complement come to passs. Example, if the price of petrol drops to RM2 a litre, sales of cars would increase.5. Maximizing TR is never a desirable refinement for a firm.True, profit is the difference between a firms rack up revenue and its rack up prospect cost. Total revenue is the amount of income pull in by selling overlaps. But it does not include the total opportunity costs of all inputs into the harvestingion process. Hence, it is never a desirable goal for a firm. Firm should consider maximizing Profit instead of TR.6. The to a greater extent than(prenominal)(prenominal) inelastic the demand, the more likely it is that a firm can have firm price increases. True, if firm have regular increase in price ( link to Appendix 1) from P4 to P5, the decrease in the quantity demanded is relatively microscopic (from Q4 to Q5). It means that, the more inelastic thedemand, the percentage diverge in quantity demanded is less(prenominal) than percentage change price. Hence, firm can have regular price increases.7. If EP = -1.25 for congregation A, and EP = -.375 for convocation 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- grocery will be charged the higher price, and those in the elastic sub market will be charged the lower price. So Group B should pay higher price. Please refer to Appendix 2 for illustration.8. A consumer spends 1% of her income on proper A and 25% on Good B. Price Elasticity of Demand should be greater for Good B. True, if the consumer spends less of her incom e, means that Good A is a necessity good and spends more of her income means that Good B is a luxury good. Luxuries tend to more elastic than necessities as there be more options for consumer.9. Income elasticity for an subordinate good is always negative. True, because quantity demand falls as income rises. Quantity demanded and income move opposite directions, inferior goods have negative elasticity.10. The more inelastic the demand, the flatter the demand edit out. False, inelastic demand have steeper curve because quantity demanded does not respond strongly to price changes. Please refer to Appendix 3 for illustration. For a inelastic demand output such(prenominal) as cig atomic number 18ttes, 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 shift to leave 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 foregone up and VC have gone down. False, because TC=TFC+TVC. From the equation above 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. fictional character B ( formulate in a short Essay (not more than 1 page each))1) Define demand, discuss various determinants of demand.Demand is the quantities of good or ser transgression that consumers are willing to buy at various prices indoors some institutionalisen period of time. Holding all other factors constant, the price of a good or service increases as its demand increases and vice versa. When factors other than price changes, demandcurve will shift. There are 5 determinants of the demand curve. First factor is price of related goods. A good or service can be related to other by being a fill in or complement. If price of a sub stitute changes, we conceive the demand for the good under consideration to change in the same direction as the change in the substitutes price. For instance, if the price of burnt umber rises, the demand for tea should increase. The complement goods are the goods that can be used 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 peoples income rises, it is apt 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 pric es rose, but people bought more because they expected the price to glide by to go up. This drove prices even further, until the bubble burst in 2006 (Stafffullcoll.edu. n.d.). by factor is tastes and perceptivenesss. 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 happen upon you feel strongly that you want 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-priced mortgages increased the number of people who were told they could yield a house. The number of buyers rattling 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 reduced the number of buyers , and demand also fell.2) soon explain the concept of Law of decrease returns? Discuss its assumption and grandness? The law of decrease marginal returns means that the productivity of a covariant input declines as more is usedin short- go by production, attribute one or more inputs fixed. This law has a direct expression on market supply, the supply price, and the law of supply. The main reasons the marginal product (MP) of this variable input declines is the fixed input. The fixed input imposes a contentedness constraint on short-run production. For example, in a sandwich production, the size of it of the sandwich-producing kitchen and equipment is fixed. The company employs additional workers, the kitchen becomes increasingly crowded. Only so some(prenominal) workers can use the sandwich-preparation counter to prepare sandwich.While adding additional workers do increase total sandwich production, the extra production ascribable to these workers is certain to fall as the c apacity of the fixed input is limited. In fact, adding too many workers actually results 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 bonny product curves. The most important 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 partnership produced per minute of arc 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 produce d by workers. The negatively-sloped portion of the AP curve is indirectly caused by the law of diminishing 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 measure? Economies of scale are the cost advantages that a bank line can exploit by prolonging the scale of production. The effect is to reduce the massive run average (unit) costs of production. Economies of scale have brought down the unit costs of production and feeding through to lower prices for consumers (appendix 6). It could be achieved by buying new machinery, and build a bigger factory. There are two types of economy of scale and depending on the particular characteristics of an industry, some are more important than others.Firstly, internal economies of scale are aproduct of how efficient a firm is at producing, that is specific to individual firm. Example, advantages are enjoyed by expansion. Next, out-of-door economies of scale occur outside of a firm but within an industry. Example, industrys scope of operations expand due to better transportation 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 decreasing costs per increase in output, firms compute 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 certain level, organization, control and planning is needed. This makes the managerial responsibilities more difficult. Delegation of the management functions to lower strength becomes very common. Since the lower personnel lack the adequate experience 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 arguing 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/ big/1determinants_of_demand.htm Accessed 28 Mar 2014. Keat, P.G. and Young, P.K.Y., 2009 Managerial Economics 6th ed. Economic Tools for directlys Decision Makers. Pg. 266-268