Managerial economics HM PDF

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Managerial Economics

Submitted by: Salwa Buriro Roll No: 2K19/HBBAE/18 Assigned by: Mam Mehwish Shamshad

Question 3-4: The demand equation faced by DuMont Electronics for its personal computers is given by P= 10,000 - 4Q. a. b. c. d.

Write the marginal revenue equation. At what price and quantity will marginal revenue be zero? At what price and quantity will total revenue be maximized? If price increased from $6000 to $7000, what will the effect be on total revenue? What does it imply about price elasticity?

Answer: a. Write the marginal revenue equation. TR= P*Q TR= (10000-4Q) *Q TR= 10000Q – 4Q2 MR= f`(x)= 10000(1) – 4(2) MR= 10000-8Q b. At what price and quantity will marginal revenue be zero?

MR= 10000 – 8Q 0 = 10000 – 8Q 8Q= 10000 Q= 10000/8 Q= 1250 Where Q is 1250 the MR will be Zero MR= 10000 – 8(1250) MR= 0

c. At what price and quantity will total revenue be maximized?

P= 10000 – 4Q P= 10000 – 4(1250) P= 5000 When price will be 5000 the total revenue will be maximized. d. If price increased from $6000 to $7000, what will the effect be on total revenue? What does it imply about price elasticity?

P= 10000 – 4Q 4Q= 10000 – P Q= 10000/4 -1/4P Q= 2500 – 1/4P

TR= P*Q TR= P (2500 – 1/4P) TR= 2500P – 1/4P2

Put the value of P= $6000 TR= 2500(6000) – 1/4(6000)2 TR= 15000000 – 1/4(36000000) TR= 15000000 – 9000000 TR= 6000000 Put the value of P= $7000 TR= 2500(7000) – 1/4(7000)2 TR= 17500000 – 1/4(49000000) TR= 17500000 – 12250000 TR= 5250000

Decision: If price increasing from $6000 to $7000, the revenue will be decrease, price should not be increase.

Question 3-5: The demand for shirts produced by a Canadian manufacturer has been estimated to be P= 30 – Q/200. a. Compute the point elasticity at P= $10; at P= $15. b. How does point elasticity vary with the price? Answer: a.

Compute the point elasticity at P= $10; at P= $15. P= 30 – Q/200 Q= 6000 – 200P Put the value of P= $10 in the demand equation Q1= 6000 – 200(10) Q1= 4000 EP1= ΔQ/ΔP * P/Q f`(x)= ΔQ/ΔP= 6000 –200P= 0 – 200(1) = -200 EP1= -200 * 10/4000 = -2000/4000 = -1/2 = -0.5 -0.5 Demand is Inelastic Put the value of P= $15 in the demand equation Q2= 6000 – 200(15) Q2= 3000 EP2= ΔQ/ΔP * P/Q f`(x)= ΔQ/ΔP= 6000 –200P= 0 – 200(1) = -200 EP2= -200 * 15/3000 = -3000/3000 = -1 -1 Demand is Unitary

b. How does point elasticity vary with the price? When the price increases, the point elasticity decreases, so the demand becomes more elastic....