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Managerial Economics Assignment Guide

This document contains instructions for a managerial economics assignment with 6 questions: 1. It asks whether economic optimization always involves maximizing an objective function subject to constraints. 2. It asks about the mathematical relationship between total, marginal, and average profit as functions of output. 3. It provides a production function and price data and asks to determine optimal input levels both with and without a budget constraint to maximize output.

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Emran Zein
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216 views2 pages

Managerial Economics Assignment Guide

This document contains instructions for a managerial economics assignment with 6 questions: 1. It asks whether economic optimization always involves maximizing an objective function subject to constraints. 2. It asks about the mathematical relationship between total, marginal, and average profit as functions of output. 3. It provides a production function and price data and asks to determine optimal input levels both with and without a budget constraint to maximize output.

Uploaded by

Emran Zein
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Gage University College

Department of Business Administration


Managerial Economics – Assignment

Instruction:
 Attempt each question showing all the necessary explanations and steps
 An exact copy of each other will result in a zero mark for both groups.
 This assignment submission date is January 10, 2022
1. Economic optimization involves maximizing an objective function, which may or may
not be subject to side constraints. Do you agree with this statement? If not, why not?
2. Suppose that a firm’s total profit is a function of output [i.e., π = f(Q)]. Marginal and
average profit are defined as Mπ = dπ /dQ and Aπ = π /Q. Describe the mathematical
relationship between total, marginal, and average profit.
3. Assume that the firm’s operation is subject to the following production function and price
data:
Q = 3X + 5Y – XY
Px = $3;Py = $6

where X and Y are two variable input factors employed in the production of Q.
i. In the unconstrained case, what levels of X and Y will maximize Q?
ii. It is possible to express the cost function associated with the use of X and Y in the
production of Q as TC = 3X + 6Y. Assume that the firm has an operating budget of
$250. Use the Lagrange multiplier technique to determine the optimal levels of X
and Y. What is the firm’s total output at these levels of input usage?
iii. What will happen to the firm’s output from a marginal increase in the operating
budget?

4. The average product of labor is given by the equation


APL = 600 + 200L-L2
i. What is the equation for the total product of labor (TPL)?
ii. What is the equation for the marginal product of labor (MPL)?
iii. At what level of labor usage is APL = MPL?

1
5. Suppose that the demand for Abay Car (QA) is estimated to be
QA = 150 – 9PA – 5PG + 10M + 0.5PT
Where QA is demand for Abay Car, PA is price of Abay car, PG is price of gasoline, M is
consumer income and PT is Price of Toyota Car. If PA = 10, PG = 10, M = 50 and PT = 180,
then determine
i. Own Price elasticity of demand, and interpret the result.
ii. Income elasticity of demand, and interpret the result
iii. Cross price elasticity of demand between quantity demand for Abay Car and price of
Gasoline, and interpret the result
6. Consider the demand curve Q =100 - 50P. Draw the demand curve and indicate which
portion of the curve is elastic, which portion is inelastic, and which portion is unitary
elastic.

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