管理经济学习题教学提纲.docx

Managerial Economics: Seminar 1 Exercises

1. The Shand company produces blank CD’s. The marginal cost of each CD is £20. Since there are many substitutes for the firm’s CD’s, the price elasticity of demand for CD’s is 2.

(a) The chairman of the company believes that cost-plus pricing is appropriate for the firm He marks-up marginal costs by 100 per cent to obtain price. Calculate the price at which the firm sells its CD’s and comment on whether the chairman is correct.
(b) Because of growing competition in the CD market, the price elasticity of demand for the firm’s CD’s increases to 3. The chairman continues to use the same cost-plus pricing strategy. Calculate the new price at which the CD’s are sold and comment on whether the chairman is correct.

2. A monopoly firm has a demand function Q = 80- 4P, and an average cost (AC) function of AC = 40Q-1 + 6, where P is price and Q is quantity.
(a) derive the expression for the demand curve from the demand function
(b) show that the marginal revenue curve is downward sloping from left to right
(c) calculate the level of output, price, and profits, at the profit maximizing level of output, and comment on your results.
(d) calculate the price elasticity of demand at the profit maximizing point on the demand curve, and comment on your results

3. Why will a monopolist’s profit maximising rate of output will always be in the region of (price) elastic demand?

4. Explain why a firm in monopolistic competition can only produce at the lowest point of its long-run average cost curve in the short run.

REVISION QUESTION
What problems arise for industry regulators if the SCP model works in reverse?

Managerial Economics: Seminar 2 Exercises

1. A and B are duopolists. The payoffs to both firms from defaulting on an agreement are 80:80; the benefits to both firms from colluding to uphold an agreement are: 100:100. If A defaults on the agreement and B upholds the agreement, the pay-offs are 150:20, respectively, while the reverse holds if B defaults on the agreement and A upholds it.

(a) Show these payoffs in matrix form
(b) If the game is a ‘one-shot’ game, what is the Nash equilibrium outcome?
(c) Explain why your answer to (b) is not a Pareto efficient outcome.

2. Suppose, now, that the above game is played indefinitely:
(a) Explain why the threat of punishment is credible?
(b) Explain why the Nash equilibrium is the same as in Q1 (b) above

3. Suppose the game above is now played infinitely:
(a) What is required for A to be deterred by the threat of punishment by B?
(b) Explain why A will only default if its discount rate is greater than 0.4 (or 40%)? Hint: think of the calculation required for discounting an infinite stream of payments/

REVISION QUESTION
1. A company believes that the demand curve for its product is:

and that its total cost function is:

Where Q = output; TC is total cost, and P is price.

(a) Explain why the demand curve has this shape.

(b) Is the marginal revenue curve continuous?

(c) What is the firms current price and output?

(d) What price and output will maximise the firm’s profit? Explain.

Managerial Economics: Seminar 3

1. Suppose can industry is composed of two firms. Suppose the demand curve for cans is:

P = 100 – Q

Where P is the price of a can (in pence) and Q is the quantity demanded of cans (in millions per month). Suppose that the total cost function of each firm is:

TC = 2 + 15q

Where TC is total cost per month (in tens of thousands of £) and q is the quantity produced (in millions per month), by the firm

(a) What are the profit maximising price and output if the firms set price = marginal cost?
(b) What are the profit maximising price and output if the firms collude and act like a monopolist?
(c) Do the firms make a higher combined profit if they collude than they would if they set price = marginal cost? If so, how much higher is their combined profit?

2. Why should oligopolists ever find collusion rational given the fundamental weaknesses of cartels?

REVISION QUESTION

3. A firm making electronic games forecasts that its required turnover next year will be a sales figure of £5 million. It estimates that price and advertising elasticities respectively, will be 0.9 and 0.08. At what level will it set its advertising budget for the coming year?