Managerial Economics

Hailey College of Banking and Finance, University of the Punjab

Assignment 01
Submission Deadline Friday 23 April 2021
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SECTION I
Please read the case study Fasten: Challenging Uber and Lyft with a New Business Model
and answer the following questions. Write the answers, take pictures, save your file with your
roll number as the name of the file. Email the file at humira.asad@ibitpu.edu.pk on or before
23 April 2021.
Q1. What explains the rapid growth of ridesharing companies such as Uber and Lyft?
Q2. What explains Fasten’s successful entry into the Boston market?
Q3. Is Uber’s valuation too high or too low?
Q4. Is the rideshare market winner takes all?
Q5. How will the self-driving vehicle technology affect the industry?
SECTION II
Q1. The supply curve is given by 𝑄𝑆 = −200 + 20𝑃𝑋 − 5𝑃𝐼 + 0.5𝑃𝑍

where
QS = quantity supplied of good X
PX = price of good X
PI = price of inputs to good X
PZ = price of good Z
a. Based on the supply curve above, what is the relationship between good X and good Z?
b. What is the equation of the supply curve if input prices are $10 and the price of Z is $20?
c. Graph the supply curve that you found in (b), showing intercepts and slope.
d. What is the minimum price at which the firm will supply any of good X at all?
e. If the price of good X is $25, what is the quantity supplied? Show this point on your supply
curve.
f. Now suppose the price of inputs falls to $5.
Graph the new supply curve.
Q2. For each of the following cases, calculate the point price elasticity of demand, and state
whether demand is elastic, inelastic, or unit elastic. The demand curve is given by
QD = 5,000 -50PX
a. The price of the product is $50.
b. The price of the product is $75.
c. The price of the product is $25.

Q3. For each of the following cases, what is the expected impact on the total revenue of the
firm? Explain your reasoning.
a. Price elasticity of demand is known to be –0.5, and the firm raises price by 10 percent.

Dr. Humaira Asad ----- Managerial Economics ----- April 2021 ------ HCBF
b. Price elasticity of demand is known to be –2.5, and the firm lowers price by 5 percent.
c. Price elasticity of demand is known to be –1.0, and the firm raises price by 1 percent.
d. Price elasticity of demand is known to be 0, and the firm raises price by 50 percent.

Q4. The following table shows data for the simple production function. Capital
costs this firm $20 per unit, and labor costs $10 per worker.
a. From the information in the table, calculate average product (AP), marginal product (MP),
total fixed cost (TFC), total variable cost (TVC),
total cost (TC), average fixed cost (AFC), average variable cost (AVC), average total cost
(ATC), and marginal cost (MC).
b. Graph your results, putting TFC, TVC, and TC on one graph and AFC, AVC, ATC, and MC
on another.
c. At what point is average total cost minimized? At what point is average variable cost
minimized?

K L TP AP MP TFC TVC TC AFC AVC MC

10 0 0
10 1 5
10 2 15
10 3 30
10 4 50
10 5 75
10 6 85
10 7 90
10 8 92

Q5. Suppose it is expected that car sales in Pakistan would fall in 2021-22, Suzuki, an
automobile company, has announced that it will spend $485 million to build a car factory in
Pakistan. Is this a short-run or long-run decision? Given the shrinking sales, does this
decision seem right to you, in an economic sense?

ᴥᴥᴥᴥᴥᴥᴥ End of Assignment ᴥᴥᴥᴥᴥᴥᴥ

Dr. Humaira Asad ----- Managerial Economics ----- April 2021 ------ HCBF