Gage University College

Department of Business Administration

Managerial Economics – Assignment

Instruction:
 Attempt each question showing all the necessary explanations and steps
 An exact copy of each other will result in a zero mark for both groups.
 This assignment submission date is January 10, 2022
1. Maximizing per-unit profit is equivalent to maximizing total profit. Do you agree?
Explain.
2. Suppose a certain contractor wants to maximize from building one bridge. The contractor
uses both labor and capital, and efficient combinations of Labor and capital that are
sufficient to make a bridge is by the function If the prices of labor
(w) and capital (r) are Birr 5 and Birr 10 respectively.
i. Find and interpret the combination of labor and capital that minimizes the firm's
cost.
ii. Determine the minimum cost of building the bridge.
iii. What is the contribution of building additional bridge on the total building cost.
3. Assume that the firm’s operation is subject to the following production function and price
data:
Q = 3X + 5Y – XY
Px = $3;Py = $6

where X and Y are two variable input factors employed in the production of Q.
i. In the unconstrained case, what levels of X and Y will maximize Q?
ii. It is possible to express the cost function associated with the use of X and Y in the
production of Q as TC = 3X + 6Y. Assume that the firm has an operating budget of
$250. Use the Lagrange multiplier technique to determine the optimal levels of X
and Y. What is the firm’s total output at these levels of input usage?
iii. What will happen to the firm’s output from a marginal increase in the operating
budget?

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4. The average product of labor is given by the equation
APL = 600 + 200L-L2
i. What is the equation for the total product of labor (TPL)?
ii. What is the equation for the marginal product of labor (MPL)?
iii. At what level of labor usage is APL = MPL?

5. Suppose that the demand for Abay Car (QA) is estimated to be

QA = 150 – 9PA – 5PG + 10M + 0.5PT
Where QA is demand for Abay Car, PA is price of Abay car, PG is price of gasoline, M is
consumer income and PT is Price of Toyota Car. If PA = 10, PG = 10, M = 50 and PT = 180,
then determine
i. Own Price elasticity of demand, and interpret the result.
ii. Income elasticity of demand, and interpret the result
iii. Cross price elasticity of demand between quantity demand for Abay Car and price of
Gasoline, and interpret the result
6. Consider the demand curve Q =100 - 50P. Draw the demand curve and indicate which
portion of the curve is elastic, which portion is inelastic, and which portion is unitary
elastic.