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MB0026 Managerial Economics Set 1

# MB0026 Managerial Economics Set 1

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MB0026 Managerial Economics Set 1
MB0026 Managerial Economics Set 1

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10/26/2012

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ASSIGNMENTS- MBA SEM -ISubject code – MB0026MANAGERIAL ECONOMICS1. The demand function of a good is as follows:
Q1=100-6P1-4P2+2P3+0.003YWHERE P1 and Q1 are the price and quantity values of good 1P2 and P3 are the prices of good 2 and good 3 and Y is the income of theconsumer. The initial values are given:P1 =7P2 =15P3 =4Y=8000Q1 =30You are required to:a) Using the concept of cross elasticity determine the relationship betweengood 1 and others.b) Determine the effect on Q1 due to a 10 % increase in the price of good 2and good 3
Ans:
When the price of p2 is raised by 10%, the change in demand isQ1 = 100-6(4)-4(16.5) +2(4) +0.03(8000)= 24

Calculating the Percentage Change in Quantity Demanded of Good 1
The formula used to calculate the percentage change in quantity demanded is:
[Q Demand (NEW) – Q Demand (OLD)]Q Demand (OLD)
= (24-30)/30 = -0.2
Calculating the Percentage Change in Price of Good 2
The formula used to calculate the percentage change in price is:
[Price (NEW) - Price (OLD)]Price (OLD)
= (16.5-15)/15 = 0.1.Cross elasticity of demand=% change in demand of prdt 1/ % change in the price of prdt 2

= -0.2/0.1 = -2%It means if the price of the price of the one pdrt increases then the demand for another pdtdecreases it means this good are substitute goods.Change in price of the pdt 3. Then the change in demand isQ1 = 100-42-60+8.08+24= 30.08.
Calculating the Percentage Change in Quantity Demanded of Good 1
The formula used to calculate the percentage change in quantity demanded is:
[Q Demand (NEW) – Q Demand (OLD)]Q Demand (OLD)
= 30.08-30/30 = 0.026.
Calculating the Percentage Change in Price of Good 3
The formula used to calculate the percentage change in price is:
[Price (NEW) – Price (OLD)]Price (OLD)
= (4.04-4)/4 = 0.01Cross elasticity of demand=% change in demand of pdt 1/ % change in the price of pdt 3= 0.01/0.026 = 0.38 or 38%This means, if the price of one good increases, it increases the demand for another product. i.e they are complementary goods.

2Q . What are factors that determine the demand curve? ExplainAns:
Graphing a demand curve begins with two perpendicular lines forming a right angle.The y-axis, or vertical line, represents “price” as the dependent variable, and the x-axis, or horizontal line, represents the “quantity demanded” as theindependent variable. Priceincrements move up along the outside of the y-axis with the highest price nearest the top.Quantity increments move from left to right just below the x-axis line with the lowest figurenearest to the 90° point of the angle. The increment spacing at both lines is such thatstraight lines drawn from each price across and upwards from each quantity will formperfect graph squares on the inside of the angle; that is, there is equal spacing between theunits on the x- and y-axes. The demand points (i.e., the correlative quantity for each priceat which there is a buyer) are now plotted within the graph to correspond to both a price onthe y-axis and a quantity on the x-axis. By connecting the points, the demand curve isformed. The points along the demand curve show how the quantity demanded depends onthe price of the goods. Since price will always have a negative effect on consumer demand,all demand curves will have a downward slope.A shift or change in the slope of the curve due to influential factors other than price iscalled a "change in demand." These factors, or determinants, affect the consumer’swillingness to buy and, therefore, the "quantity demanded." Obvious determinants wouldinclude fluctuating income, personal preferences, price change anticipation, a suddenboom in the market population, and price increases on complementary products or substitutes. For example, an increase in demand due to an increase in income would shiftthe demand curve to the right, and a decrease in demand due to a decrease in the price of a comparable substitute product would shift the demand curve to the left.
3. Q A firm supplied 300 pens at the rate of Rs 10. Next month , due to arise in the pries to Rs 22 /Pen the supply of the firm increase to 5000pens . Find the elasticity?
Ans:
Original supplied pens = 3000 Original Rate = Rs 10Newly Supplied = 5000 New Rate = Rs 22
Elasticity of demand = Change in demand X priceChange in price Demand
5000-3000 X 10 =
0.55
= 22-10 3000