Managerial Economics Worksheet for MBA

1. Describe law of diminishing marginal return

a. Draw the graph of marginal product and average product on the same x-y axis and explain it
b. Mention and discuss the three assumptions for law of diminishing return.
2. Explain the two main roles of managers in the production process
3. Mention and explain the importance of demand forecasting?
4. Define isoquants and mention at least three properties of isoquants
5. After defining short run and long run production, give example of production function for each.
6. State the law of demand and draw it on x-y axis
a. Mention at least three assumptions of law of demand
7. Discuss the effect of substitute and compliment on the demand curve of goods.
a. Explain the effect of substitute as the price goes up and down.
b. Explain the effect of complement as the price goes up and down.
c. Show the effect of both substitute and complement on the demand curve by drawing the graph as
the price goes up and down.
d. Discuss the effect of substitute and complement on the demand of goods with examples.
8. The demand function for a good is Q d = 150 – 10P, where P is the price and Q d is the quantity
demanded in units per period.
a. Find Qd and price at which total revenue is maximized
b. Find the price at which total revenue is maximized
9. Discuss each of the three phases and which phase do you recommend for maximizing production,
justify the feasibility by drawing the total product curve.

AP,MP

Stage I Stage III

Stage II

APX

MPX X
10. Suppose that a firm is currently employing 20 workers, the only variable input, at a wage rate of $60.
The average product of labor is 30, the last worker added 12 units to total output, and total fixed cost
is $3,600.
a. What is marginal cost?
 b. What is average variable cost?
c. How much output is being produced?
d. What is average total cost?
e. Is average variable cost increasing, constant, or decreasing? What about average total cost?
11. Interpret each of the following demand elasticity values
PED Demand Interpretation

>1 Elastic
<1 Inelastic
=1 Unit elastic
∞ Perfectly elastic
0 Perfectly inelastic

12. Fill the following table (TP, MP) and mention stage of productions

Three Stages of Production

Stages
Labor Total Average Marginal Elasticity, of
Unit Product Product Product Ex=MP/AP Production
(X) (Q or TP)
1 24 1
2 36 1.33
3 46 1.43
4 54 1.44
5 60 1.4
6 64 1.31
7 66 1.18
8 66 1
9 64 0.75
10 60 0.38

11 54 -0.11
12 46 -0.91

13. An economic consultant for X Corp. recently provided the firm’s marketing manager with this
estimate of the demand function for the firm’s product. Qx d = 12,000 -3Px + 4Py - 1M + 2Ax where
d = amount consumed of good X, Px = price of good X, Py = price of good Y, M = income, and Ax =
amount of advertising spent on good X. Suppose good X sells for $200 per unit, good Y sells for $15
per unit, the company utilizes 2,000 units of advertising, and consumer income is $10,000.
 a. How much of good X do consumers purchase?
b. Are goods X and Y substitutes or complements?
c. Is good X a normal or an inferior good?
14. A firm’s total cost function is TC = 12+60Q -15Q2 + Q3. Required: Suppose that the firm produces
10 units of output.
a. Calculate total fixed cost (TFC),
b. Total variable cost (TVC),
c. Average total cost (ATC),
d. Average fixed cost (AFC),
e. Average variable cost (AVC), and
f. Marginal cost (MC).
15.First discuss the difference between opportunity and explicit cost, then give an example for each.
16.Discuss the effect of change in price of substitute and compliment on the demand of goods. Explain
graphically.
17.How habit and availability of substitutes influence the price elasticity of demand?
18. Fill in the blanks in the following table:

Output TC TFC TVC AFC AVC ATC MC

100 260 60

200 0.30

300 0.50

400 1.05

500 360

600 3.00

700 1.60

800 2,040

19.Explain the difference between accounting profit and implicit profit by giving an example for each.
20.How brand and availability of substitutes influence the price elasticity of demand?
21.Discuss the change in income effect on the demand curve on normal and inferior goods. And explain
graphically.
22.Compute a 3-year weighted moving average to forecast shipments in year 12. Using a weight of 3 for most
recent data, 2 for the next, and 1 for the oldest, forecast shipments in year 12.

Year 1 2 3 4 5 6 7 8 9 10 11 12

Tone 2 3 4 6 8 12 13 14 14 15 16
23. Mention at least seven features of perfectly competitive market structure and give an example from
Ethiopia.
24. Why firms in the perfectly competitive market structure are price taker?
25. Market price=2, TC=10+2Q + 3Q2 Calculate Fixed Cost, Quantity, Total revenue, Total cost,
average fixed cost, average variable cost, average total cost and Profit
26. Consider a competitive firm with a fixed cost of $800 and a variable cost function of VC = 75Q -
12Q2 + 2Q3.
1. When would this firm prefer to shut down?
2. Draw a graph to show the price and quantity of the shut-down decision.
27. If there is super normal profit in the short run what will happen in the long-run?
28. Mention at least five features of monopolistic competition market structure and give an example
from Ethiopia
29. How firm in monopolistic competition price maker rather than price taker?
30. Discuss the similarity and difference between perfectly competitive and monopolistic competition
31. How product differentiation is created in monopolistic competition market structure?
32. Mention the reasons that why there is advertising in monopolistic competition but not in perfectly
competitive market structure?
33. Mention at least four features of oligopoly market structure and give an example from Ethiopia
34. Mention at least five features of monopoly market structure and give an example from Ethiopia
35. Discuss the relation between demand of a firm and demand of industry in the case of monopoly
market structure.