Download MBA651 Managerial Economics

MBA651 Managerial Economics
Assignment 1
by
Bryon Gaskin
Gary Santoni
Ball State University
Spring 2004
Problem 3 Page 69
P=$2, Qd=35.
The maximum price that consumers will pay is $2.00 when the quantity demanded per
unit of time is 35 units given all other things the same.
The maximum quantity demanded per unit of time by consumers will be 35 units when
the price of good X is $2.00 given all other things the same.
Problem #13 Page 71
A.)
Given the following information:
Demand and supply functions are as follows:
Qd= 50-8P
Qs= -17.5+10P
Equilibrium= Qd=Qs,
Solve for equilibrium price
50-8P=-17.5+10P
50+17.5=10P+8P
67.5=18P
P=67.5/18=3.75
Market Clearing price is $3.75
Qd=50-(8*3.75)=20
Qs=-17.5+(10*3.75)=20
Solution:
Equilibrium Price= $3.75 per unit
Equilibrium Quantity=20 units per unit of time
B.)
If the price is $2.75, then the market outcome would be a market shortage. The quantity
demanded would cause the consumer to bid up the price higher until the quantity
demanded matched the quantity supplied.
C.)
If the price was $4.25, the market outcome would be a market surplus. The quantity
demanded would fall because consumers would force the producers to reduce the price so
that the producer does not accumulate excess inventory.
D.)
If the Qd changes from 50-(8P) to 59-(8P), the equilibrium price would raise from $3.75
to $4.25, and the equilibrium quantity would raise from 20 to 25.
E.)
If the Qs changed from –17.5+10P to –40+10P and Qd remained at 50-(8p), the
equilibrium price would raise from $3.75 to $5.00, and the equilibrium quantity would
drop from 20 to 10.
Problem 4 Page 74.
Q. Generalized question. Why would someone who is waiting in line desire a price
increase for the very items they are planning to buy?
A. The reason that people standing in a line for item might want the price of those items
to increase is because an increase in the price of those items would cause the demand to
drop, thus shortening the amount of time spent in line. The union has more than likely
artificially put a price ceiling on how much they charge for lunch. This ceiling prevents
the market price from reaching the equilibrium price. With the price of lunch below the
equilibrium price, demand is greater than supply, and a shortage exists, and thus the
formation of the line.
Problem 9 Page 74
Proposition 103 will created what is called a price ceiling on the price of insurance. Price
ceilings are notorious for creating shortages in the market place. It has been observed in
the housing markets in New York, and the gas pumps throughout most of the 1970s.
What we would expect in this case is that many people will go without insurance. If the
insurance companies continue to experience rising costs, but yet cannot adjust their price
upwards, then what we would find is that only the lowest risk clients would be insured by
the companies. Another thought, if the bill DID NOT prevent Californians from seeking
insurance outside the state, then many of the people who could not be insured in
California would look to other states for insurance. If the bill did prevent them from
going outside the state, then you would have people without insurance and more
importantly no way to get it, no matter how much money they had.