Economics for

Investment
Decision Makers
An in dividual consumer’s monthly demand for downloadable e-books is given by
the equation
= 2-0.4 Peb +0.0005I+ 0.15Phb

Where equals the number of e-books demanded each month, Peb equals the price
of e-books. I equals the household monthly income, and Phb equals the price of
hardbound books, per unit. Notice that the sign of the price of hardbound books is
positive, indicating that when hardbound books increase in price, more e-books
are purchased; thus, according to this equation, the two types of books are
substitutes. Assume that the price of each e-book is 10.68$, household income is
2300$, and the price of each hardbound book is 21.40$
Question:
1. Determine the number of e-books demanded by this household each month
2. Given the values for I and Phb determine the inverse demand function
3. Determine the slope of the demand curve for e-books
4. Calculate the vertical intercept (price-axis intercept) of the demand curve if
income increase to 3000$ per month.
5. Determine the value of own-price elasticity of demand for e-books
6. Determine the income elasticity of demand for e-books
7. Determine the cross-price elasticity of demand for e-books with respect to the
price of hardbound books
An individual seller’s monthly of downloadable e-books is
given by the equation
= -64.5 + 37.5 Peb -7.5W
Where is number of ebooks supplied each month, Peb is
price of e-books in USD
And W is the hourly wage rate in $ paid by e-book sellers to
workers. Assume that the price of ebooks are 10.68$ and the
hourly wage is 10$

Question:
1. Determine the number of e-books supplied each month?
2. Determine the supply function for an individual seller?
3. Determine the slope of the supply curve for e-books?
4. Determine the new vertical intercept of the individual e-
book supply curve if the hourly wage were to rise from 10$
to 15$
Mr A has a total budget of 480$ per month on 2 goods: X and Y.
The price of X is 1$/unit and the price of Y is 3$/unit
The Utility function is U(X,Y)= 1/2X.Y

Question:
1- For the max utility, how much x and y should the MR A purchase
in order to maximize his utility. How much for the total utility of Mr A
in that case?
2- Determine the new best decision of Mr A if the budget decrease
from 480$ to 360$. Calculate new total utility and construct a
diagram.
3. Determine the new best decision of Mr A if
• the new budget is 360$
• the price of Y is maintained
• the price of X is increased by 50%. Construct a diagram.
Mr A has a total budget of 1,860,000 VND per month on 2
goods: X and Y. The price of X is 6,000VND/unit and the price
of Y is 10,000VND/unit
The Utility function is U(X,Y)= (X+2)Y

Question:
1- Calculate Mr A’s budget constraint and construct a diagram
of Mr A’s budget constraint.
2. For the max utility, how much x and y should the MR A
purchase in order to maximize his utility. How much for the
total utility of Mr A in that case?
3. Determine the slope of budget curve and indifference curve
4. Determine the new best decision of Mr A if the budget
increase from 1,850,000 VND to 2,510,000. Construct a
diagram.
5. Determine the new best decision of Mr A if the price of Y
increase from 10,000VND to 15,000 VND. Construct a
diagram.
An has a total budget of 100 millions VND this year and
expecting income for the next year is 154 millions. For
simplicity, we will assume that An can borrow or lend the
money with the interest rate of 10%.

Question:
1- Construct a diagram of An. How much for the maximize of
An’s budget (in the present and in the future)
2. Let’s assume that An is using her income for now? Point
out the equilibrium for her consumption
3. If the interest rate increases from 10% to 40%, will An
change her decision? Construct a diagram.
4. Following question 1, Let’s assume that An is borrowing 50
millions VND, how much money does she has for the future’s
expenditure? If the interest rate will also increase from 10% to
20%, will she change her borrowing decision? Construct a
diagram.
You own a pizza shop in a downtown mini-mall. It is Saturday morning, and you
are trying to decide how many pizzas to make to meet today's lunch hour
demand. Based upon your experience with Saturdays, you think that the
probability of being able to sell 20 pizzas is 0.2, of being able to sell 40 pizzas is
0.3, and of being able to sell 50 pizzas is 0.5. Suppose a pizza sells for $10 and
has an incremental cost of $4.25. If you have leftover pizzas, you can sell them
to the homeless shelter for $1.25 each. If demand exceeds the number of pizzas
you have prepared, every disappointed customer costs you $0.25 worth of lost
customer goodwill.
1) Construct the payoff table.
2) Assume you did not have the probability knowledge. Identify the decision
you would make using each of the following criteria: Maximax, Maximin, and
Minimax Regret.
3) Find the ER for each alternative. Based upon the ER criterion, what is the
best decision? Also find the ER with PI and the EVPI.
4) Draw the decision tree that this problem calls forth and solve
Practice 1
Let the production function be given by Q = KL with r = 2 and w = 1. [Note: (marginal
product of capital) MPK = L and (marginal product of labor) MPL = K.]
Question:
1. How much K and L is employed in the efficient production of 32 units of output?
2. What is the minimum cost of producing 32 units of output?
3. Construct a diagram.

Practice 2
Let the production function be given by Q = 2K + L with r = 3 and w = 1
Question
1. How much K and L is employed in the efficient production of 10 units of output?
2. What is the minimum cost of producing 10 units of output?
3. Construct a diagram.

Practice 3
Let the production function be given by Q = min{2K, L} with r = 2 and w = 1.
Question
1. How much K and L is employed in the efficient production of 20 units of output?
2. What is the minimum cost of producing 20 units of output?
3. Construct a diagram
Một xí nghiệp có hàm sản xuất Q = (K-4)*L. Giá thị trường của
2 yếu tố sản xuất K và L lần lượt là: PK = 30 và PL=10
Yêu cầu:
1.    Xác định phối hợp tối ưu giữa 2 yếu tố sản xuất khi tổng
chi phí sản xuất bằng 1800 (TC=1800). Tính tổng sản lượng
đạt được.
2.    Khi tổng chi phí sản xuất tăng lên 2400 (TC=2400), xác
định phối hợp tối ưu và tổng sản lượng đạt được.
3.    Khi tổng chi phí sản xuất tiếp tục tăng lên 2700
(TC=2700), xác định phối hợp tối ưu và tổng sản lượng đạt
được.
4.    Mô tả các câu trên bằng đồ thị và vẽ đường phát triển (mở
rộng quy mô sản xuất) dựa vào kết quả 3 câu từ 1-3.
5.    Tính chi phí trung bình tối thiểu cho cả 3 trường hợp khi
chi phí thay đổi từ 1800, lên 2400 và đến 2700. Ở quy mô
sản xuất nào, chi phí trung bình tối thiểu thấp nhất
6.    Để đạt được sản lượng mục tiêu 7500 sản phẩm, phối hợp
tối ưu và tổng chi phí trung bình thấp nhất là bao nhiêu?
The total cost function of firm A in the perfect competitive
market is given by the equation TC = Q2 +180Q+ 140,000

Question:
1- if market’s price is 1200, how many products should
firm A produce in order to maximize profit. How much for
the total profit of firm A in that case?
2. In this level of price, what is the break-even point of firm
A?
3. What is the break-even cost of firm A?
4. In case the market’s price down to 800 (lower than
break-even cost), should firm A keep launching? If yes,
how much should they produce? Calculate the
profit/losses of them. Construct a diagram.
Q 0 5 10 15 20 25 30 35 40 45 50

TC 3000 4000 4600 5000 5200 5400 5700 6300 7400 8600 10400

The above table shows the following cost of firm A

Question:
1. Calculate ATC, AVC, AFC, MC for each level of Q?
2. What is the Shutdown point of firm A?
3. if market’s price is 240, how many products should firm A
produce in order to maximize profit. How much for the total
profit of firm A in that case?
4. In case the market’s price down to 120, should firm A keep
launching? If yes, how much should they product? Calculate
the profit/losses of them.
5. In case the market’s price down to 60, should firm A keep
launching?
Có nhà độc quyền 2 hãng cạnh tranh với nhau, sản xuất sản
phẩm giống nhau và biết đường cầu thị trường là P = 45 – Q.
Trong đó Q tổng sản lượng của 2 hãng( Q = Q1 + Q2), giả sử 2
hãng có hàm chi phí cận biên bằng không.
a.Tìm hàm phản ứng của mỗi hãng để tối đa hóa lợi
nhuận?
b.Mỗi hãng sản xuất bao nhiêu khi đó giá thị trường là
bao nhiêu?
c.Giả định 2 hãng có thể cấu kết với nhau và chấp nhận
lợi nhuận như nhau, khi đó sản lượng mỗi hãng đạt
được bao nhiêu?
d.Vẽ đồ thị minh họa.