FEBRIANI PUTRI PRATIWI

A021191039

MID TEST MANAJEMEN MANAJERIAL

P2.1 Graphic Analysis

A. Given the output (Q) and price (P) data in the following table, calculate total revenue
(TR) and marginal revenue (MR):

Total
Revenu Marginal
e Revenue
Quantit Pric TR=P× MR=∂TR/∂
y e Q Q
0 $10
1 9
2 8
3 7
4 6
5 5
6 4
7 3
8 2
9 1
10 0

B. Graph these data using "dollars" on the vertical axis and "quantity" on the horizontal
axis. At what output level is revenue maximized?

C. Why is marginal revenue less than average revenue at each price level?

P2.1 SOLUTION

A.

Total
Revenu Marginal
e Revenue
Quantit Pric TR=P× MR=∂TR/∂
y e Q Q
0 $10 0 --
 1 9 $9 $9
2 8 16 7
3 7 21 5
4 6 24 3
5 5 25 1
6 4 24 -1
7 3 21 -3
8 2 16 -5
9 1 9 -7
10 0 0 -9

B. If production of partial units is not possible, revenue is maximized at an output level

of Q = 5 because MR switches from positive to negative at Q = 6. Because output is
lumpy, there is no single point at which MR = 0.

Price, Total Revenue and Marginal Revenue

$30

Maximum Revenue
$25

Total Revenue
$20

$15

$10
Dollars ($)

$5

$0
0 1 2 3 4 5 6 7 8 9 10

-$5 Marginal Revenue

-$10

-$15
Output

C. At every price level, price must be cut by $1 in order to increase sales by an

additional unit. This means that the "benefit" of added sales from new customers is
only gained at the "cost" of some loss in revenue from current customers. The net
increase in revenue from added sales is always less than the change in gross
revenue, and marginal revenue is always less than average revenue (or price) when
the demand curve is downward sloping.

P2.2
 A. Fill in the missing data for price (P), total revenue (TR), marginal revenue (MR), total
cost (TC), marginal cost (MC), profit (π), and marginal profit (Mπ) in the following
table:

Q P TR=P×Q MR=∂TR/∂ TC MC=∂TC/∂ Mπ=∂π/∂Q

Q Q π
0 $160 $0 -- $0 0 $0 --
1 150 150 150 25 25 125 125
2 140 55 30 100
3 390 35 300 75
4 90 130 350
5 110 550 175
6 600 50 55 370
7 630 290 60 -30
8 80 640 355 285
9 75 -85
10 600 525

B. At what output level is profit maximized?

C. At what output level is revenue maximized?

D. Discuss any differences in your answers to parts B and C.

P2.2 SOLUTION
A.

Q P TR=P×Q MR=∂TR/∂ TC MC=∂TC/∂ Mπ=∂π/∂Q

Q Q π
0 $160 $0 -- $0 0 $0 --
1 150 150 150 25 25 125 125
2 140 280 130 55 30 225 100
3 130 390 110 90 35 300 75
4 120 480 90 130 40 350 50
5 110 550 70 175 45 375 25
6 100 600 50 230 55 370 -5
7 90 630 30 290 60 340 -30
8 80 640 10 355 65 285 -55
9 70 630 -10 430 75 200 -85
10 60 600 -30 525 95 75 -125

B. Profit increases as long as MR > MC and Mπ > 0. In this problem, profit is

maximized at Q = 5 where π = $375 and TR = $550.

C. Total Revenue increases so long as MR > 0. In this problem, revenue is maximized

at Q = 8 where TR = $640 and π = $285.
 D. Given a downward sloping demand curve and MC > 0, as is typically the case, profits
will be maximized at an output level that is less than the revenue maximizing level.
Revenue maximization requires lower prices and greater output than would be true
with profit maximization. The potential long-run advantage of a revenue-maximizing
strategy is that it might generate rapid market expansion and long-run benefits in
terms of customer loyalty and future unit-cost reductions. The cost is, of course,
measured in terms of lost profits in the short-run (here the loss is $90 in profits).

P3.1 Demand and Supply Curves.

The following relations describe monthly demand and supply
conditions in the metropolitan area for recyclable aluminum:
Q D=317500−10000 P … … … … … ..(Demand Curve)
Q S =2500+7500 P … … … … … .(Supply Curve)
Where Q is quantity measured in pounds of scrap aluminum and P is price in cents.
Complete the following:

Quantity Quantity Surplus or

Price
Supplied Demanded Shortage
(1) (2) (3) (4)=(2)-(3)
15
16
17
18
19
20

P3.1 SOLUTION

Quantity Quantity Surplus or

Price
Supplied Demanded Shortage
(1) (2) (3) (4)=(2)-(3)
15 115000 167500 -52500
16 122500 157500 -35000
17 130000 147500 -17500
18 137500 137500 0
19 145000 127500 17500
 20 152500 117500 35000

P3.2 Demand and Supply Curves.

The following relations describe monthly demand and supply
relations for dry cleaning services in the metropolitan area:
Q D=500,000−50,000 P( Demand)
QS =−100,000+100,000 P( Supply)
where Q is quantity measured by the number of items dry cleaned per month and P
is average price in dollars.
A. At what average price level would demand equal zero?

B. At what average price level would supply equal zero?

C. Calculate the equilibrium price–output combination.

P3.2 SOLUTION
A. At what average price level would demand equal zero?
Given, Q D=500,000−50,000 P

Now, set the demand equation equal to zero to get average price

Q D=500,000−50,000 P=0
¿ , 500,000=50,000 P
500,000
¿ , P=
50,000
∴ P=10
So, the average price level at which demand equal zero is
10

B. At what average price level would supply equal zero?

Given, Q S =−100,000+100,000 P
Q S =−100,000+100,000 P=0
¿ , 100,000=100,000 P
100,000
¿ , P=
100,000
∴ P=1

So, the average price level at which supply equal zero

 is 1

C. Calculate the equilibrium price–output combination.

Given, Q D=500,000−50,000 P( Demand)

Q S =−100,000+100,000 P( Supply)
We know that, at equilibrium, Q D=Q S
Therefore, 500,000−50,000 P=−100,000+100,000 P
¿ , 500,000+100,000=50,000 P+100,000 P ,
¿ , 150,000 P=600,000 ,
600,000
¿ , P= ,
150,000
∴ P=4
The equilibrium price is
$4

Substituting this equilibrium price in demand equation, we get equilibrium quantity

Q=Q D =500,000−50,000 P ,
¿ , Q=500,000−50,000 ( 4 ) ,
¿ , Q=500,000−200,000 ,
∴ Q=300,000
Therefore, the equilibrium quantity is
300,000 and Price is $4

P3.3 Demand Analysis.

The demand for housing is often described as being highly cyclical and very sensitive
to housing prices and interest rates. Moreover, when price is expressed as a function
of quantity, indicate whether the effect of each of the following is an upward or
downward movement along a given demand curve or involves an outward or inward
shift in the relevant demand curve for housing. Explain your answers.
A. An increase in housing prices

B. A fall in interest rates

C. A rise in interest rates

 D. A severe economic recession

E. A robust economic expansion

P3.3 SOLUTION

A. An increase in housing prices: Indicates an upward movement along a demand

curve. This increase in price results in a decrease in quantity demanded of housing
units. Law of demand dictates that if price go up, quantity demanded decreases,
which is reflected in the movement along demand curve.
B. A fall in interest rates: A decrease in interest rates causes an increase in demand at
the prevailing prices which causes outward shift of demand curve for housing. This is
because of the fact that demand and interest rates are inversely related—that is, they
change in opposite directions.
C. A rise in interest rates: A rise in interest rates results in a decrease in demand at the
prevailing prices which causes inward shift of demand curve for housing. This is
because of the fact that demand and interest rates are inversely related—that is, they
change in opposite directions.
D. A severe economic recession: Indicates an inward shift of demand curve for housing
during severe recession. At recessionary period, demand will go down at the existing
prices since purchasing power of consumers decreases comparing to normal period.
E. A robust economic expansion: Indicates an outward shift of demand curve for
housing during robust economic expansionary period. Demand will increase at the
existing prices since consumers now have more money to buy houses comparing to
normal period.

P4.1 Utility Theory

Determine whether each of the following statements is true or false. Explain why.
A. According to the theory of consumer behavior, more is always better.

B. Consumers must understand how much one product is preferred over another
in order to rank order consumption alternatives.

C. A market basket is a descriptive statement that relates satisfaction or well-

being to the consumption of goods and services.

D. The nonsatiation principle abstracts from time and place considerations.

 E. Marginal utility measures the consumer’s overall level of satisfaction derived
from consumption activities.

P4.1 SOLUTION
A. True, because consumers tend to buy products that will provide the most use or
satisfaction, according to their tastes and relative prices.

B. Right. Because each consumer is assumed not to be confused in making choices.

Every consumer knows what is good and what is bad. Thus, every consumer can
always make a choice between the two existing alternatives.

C. No, because the market basket contains a list of goods or services that consumers
will buy in a certain amount.

D. Right. Because understanding consumer behavior also helps sellers to know what,
where, when, how and why the consumption of product consumption occurs. This
helps the seller or organization to find out the reasons behind the purchase of a
product by consumers and how it satisfies them.

E. Right. Because this Marginal Utility can describe the increase / decrease in
satisfaction as a result of the increase / decrease in the use of one particular item of
goods.

P4.2 Law of Diminishing Marginal Utility

Indicate whether each of the following statements is true or false. Explain why.
A. The law of diminishing marginal utility states that as an individual increases
consumption of a given product within a set period of time, the utility gained
from consumption eventually declines.

B. When prices are held constant, a diminishing marginal utility for consumption
decreases the cost of each marginal unit of satisfaction.
 C. Marginal utility measures the added satisfaction derived from a 1-unit
increase in consumption, holding consumption of other goods and services
constant.

D. When goods are relatively scarce, the law of diminishing marginal utility
means that the added value of another unit of goods will be small in relation
to the added value of another unit of services.

E. The law of diminishing marginal utility gives rise to a downward-sloping

demand curve for all goods and services.

P4.2 Law of Decreasing Marginal Utility

A. Right. Because diminishing marginal utility indicates that the utility / satisfaction the
consumer gets from consuming additional units decreases. In other words, when the
individual consumes more units of the good or service, the additional unit provides a
decreasing total satisfaction. For example, once a consumer drinks their first cup of
sweet tea, their thirst or need for an energy boost will be largely satisfied, so that an
extra cup provides little added satisfaction. 

B. Wrong. When prices are held constant, diminishing marginal utility for consumption
increases the cost per unit of marginal satisfaction.

C. Right. Marginal utility shows the additional satisfaction that consumers receive for
each additional consumption of goods / services. This means that the additional
goods / services consumed are the same. The additional benefit obtained through
consumption of each product grows smaller as consumption increases, maintaining
other constants.

D. Right. In economics, the law of diminishing marginal utility states that the marginal
utility value of a good or service decreases as supply increases. Economic actors
devote each unit of good or service in terms of value order. The law of diminishing
marginal utility is used to explain other economic phenomena, such as time
preference.

E. True. Because the law also explains why the demand curve slopes downward where
each additional unit of the good or service is put at the less valuable end. This
application of the law of marginal utility shows why an increase in the money supply
reduces the exchange rate for the units of money, since each successive unit of
money is used to buy the less valuable share.