1. elasticity question 1 a. what, in general, does elas
1. 1. Elasticity question 1
a. What, in general, does elasticity measures?
b. Who might care about the price elasticity of demand
and why?
c. Who might care about the price elasticity of supply and
why?
d. Who might care about the cross elasticity of demand
and why?
e. Who might care about the income elasticity of demand
and why?
f. The formula to calculate the coefficient of elasticity of
demand is (percentage change in quantity demanded of product
X) / (percentage change in the price of product X). If your boss
tells you she is planning a price increase in product X and wants
to know how many units will be purchased after the price
change, does the formula give you enough info to answer the
question? If yes, why? If no, why not?
i. Hint:
ii. Think about what the formula really says.
iii. Can you as the analyst actually collect all the
information required to calculate the answer?
iv. what degree does it give you information about
what might happen in the future?
g. List and explain all the measures of elasticity that were
2. covered in the slides, including Elasticity of Demand, Supply,
Income, and Cross Elasticity of Demand.
i.Please refer to the slides and audio to prepare this
answer.
1. Elasticity of demand and supply should both
have 5 interpretations of Elasticity. Income Elasticity should
have 2 interpretations, and Cross Elasticity of Demand should
have 3.
2. Elasticity question 2
a. Total Revenue Test
i. Explain the Total Revenue Test
ii. How might the info help the firm make better
decisions?
b. List and explain in detail, the determinants of price
elasticity of demand and give 2 examples for each one (do not
use examples from the slides).
c. There are 4. Please refer to the slides and audio as
you prepare your answer.
d. Relative to Elasticity of Supply, please explain the
importance of time to the tomato farmer discussed in the slides
and audio. How does time impact elasticity and the input
utilization choices available to the tomato farmer? Please
review the slides and listen to the lecture before you answer this
3. question.
e. Cross elasticity of demand - 1
i. Explain what cross elasticity of demand actually
tells us.
ii. Explain why a PepsiCo Executive would benefit
from understanding cross elasticity of demand when evaluating
a recommendation to lower the price of Doritos.
iii. How does understanding cross elasticity of
demand support better decision-making?
f. Cross elasticity of demand – 2
i. Explain why an Analyst working for the Anti-
Trust Division of the Justice Dept. (what is the job of the Anti -
Trust Division of the Justice Dept.?) would benefit from
understanding cross elasticity of demand when evaluating the
proposed merger of Coca Cola Company and Pepsi.
3. Cost of Production 1
a. Explicit and implicit costs.
i. Explain the difference between explicit costs
and implicit costs.
ii. Explain who would care about them and why.
b. The production function.
4. i. What does the production function tell us?
ii. What questions can it help a business answer?
iii. What information would you need if you were
asked to construct your company production function?
1. Please remember, the production function
will include much greater detail than just labor and capital.
iv. What departments would you call to get that
info and why? (look at the organization chart of a typical
business to get some insight into this.)
c. Short Run Production Relationships
i. List and explain each of the 3 Short Run
Production Relationships discussed in the slides and audio and
explain who in a business would care about each of them and
explain how each might be used.
4. Cost of Production 2
a. Law of Diminishing Returns.
i. Explain the Law of Diminishing Returns,
including the assumptions.
ii. Explain how understanding that law might help
a business manager make better business decisions.
5. b. Short run production costs. There are 7 of these.
Please review the slides and lecture to prepare your answer.
i.Explain each of the short run production costs
and tell me how a business manager might use each of them.
c. Long Run ATC Please focus on the slides and audio
to get the story on this.
What does the Long Run ATC tell us?
i. Explain how the long run ATC curve is
derived.
ii. Explain how understanding that concept might
help a business manager make better decisions.
iii. Where along the LRATC would a firm want to
operate and why?
d. Economies of Scale
i.Explain economies of scale, constant returns to
scale, and dis-economies of scale.
ii.Explain how understanding each of these
concepts might help a business manager improve their decision-
making.
5.For the Pure Competition Market Structure1
a. List and explain each of the characteristics of
pure competition and why we study that market structure.
6. b. List and explain the 3 decision process questions
confronting the producer in pure competition.
i. Please refer to the slide that discusses the 3
decision process questions under the total revenue total cost
approach and listen to the audio to prepare your answer.
c. From the point of view of the business manager,
explain the Total Revenue Total Cost approach to determining
the profit maximizing level of output for the purely competitive
firm, and how that info can help a business manager.
i.Please refer to the Total Revenue Total Cost
Approach slide and the audio to prepare your answer.
6.For the Pure Competition Market Structure2
a. List and explain the three characteristics of the
MR-MC approach to determining the profit maximizing output
and price for the purely competitive firm.
i.Please refer to the slide that discusses short run
profit maximization Key Rule regarding the MC – MR approach
and the audio to prepare the answer.
b. From the point of view of the business manager of
a purely competitive firm in the short run, please explain the
steps involved in using the MR MC approach to determining the
firm’s:
optimal level of output,
7. i. the corresponding price,
ii.the firm has achieved a maximum profit,
iii. the firm has achieved a minimum loss, or
iv. the firm has achieved a shut-down condition.
Please include the roles of
ATC and AVC.
7. You are a business manager working for a firm in a purely
competitive market and you just hired a summer intern who
does not understand how to derive the firms’ short run supply
curve from the firms’ marginal cost curve.
a. Please explain to the intern how the short run
supply curve is derived from the firm’s marginal cost curve. Be
specific.
b. Please explain to the intern the characteristics of
long run equilibrium of a purely competitive firm and how
operating in a purely competitive market might impact the
decision-making of the firm in the long run. Please include the
implications of long-run equilibrium for productive and
allocative efficiency.
i.Please refer to the slides and audio to prepare
the answer. Please include the 3 assumptions, as well as the
implications for economic profit, productive efficiency and
allocative efficiency.
8.For the Pure Monopoly Market Structure1
8. a. List and explain the characteristics of pure
monopoly and how they differ from the characteristics of the
pure competition market structure.
i.Please include all 6
b. List and explain how a monopolist would use each
of the barriers to entry and include how using that barrier would
actually accomplish the monopolists’ objective. Be specific.
c. You are a business manager and you are
considering lowering the price of your product. How will
knowing where your firm is currently operating on its demand
curve help you make a sound business decision?
i.Please refer to the slides and audio to prepare
your answer. The monopoly revenue and cost slide should help.
9.For the Pure Monopoly Market Structure2
a. For the monopolist, using the MR MC approach,
please explain in detail the steps required to determine:
i. The firm’s optimal level of output.
ii.The firm’s product price that would correspond
to that optimal level of output.
iii.the firm has achieved maximum profit
iv. the firm has achieved minimum profit
9. b. You are employed by a firm with monopoly power.
The boss wants to increase profits.
i.Explain the power of price discrimination to
your boss.
ii.Explain the requirements and assumptions for
successfully implementing this approach.
iii.Explain 2 things that would prevent this
approach from being successful.
c. You work for the government in the department
that is responsible for dealing with Monopoly issues (the
Antitrust Division of the Justice Dept.). Please read through the
slides, listen to the audio lectures, then:
i.Explain the dilemma of regulation.
ii.List and explain each of the 3 options covered
in the lecture, along with the impact of each option the
monopoly firm and the customers.
iii.Pick one of the options and explain why you
picked it.
10.For the Monopolistic Competition Market Structure
a. List and explain the characteristics of
monopolistic competition and compare them to the
10. characteristics of pure competition and monopoly.
i.Please discuss monopolistic competition, list
and explain the characteristics.
b.Product differentiation
i. List and explain the characteristics of product
differentiation.
ii. Provide 3 examples of companies actually
using these product differentiation techniques and how they are
using them.
iii. Explain the impact that product
differentiation technique had on the firms’ performance.
c. You are a business manager at a monopolistically
competitive firm. Please explain to one of your newly hired
workers how to determine the following:
the optimal level of output?
i. the price that corresponds to that optimal level
of output?
ii.the firm has achieved maximum profits?
iii. the firm as achieved minimum losses?
Be sure you explain the roles of ATC and
AVC.
11.For the Oligopoly Market Structure
11. a.List and explain the characteristics of oligopoly and
compare them to the characteristics of the other 3 market
structures using a grid.
b. Explain which oligopoly model best lends itself to
the use of the MR MC approach and why.
c. Explain in detail the steps required to determine the
optimal level of output for the oligopoly market structure model
that best lends itself to the use of the MR MC approach.
d. Explain in detail the steps required to determine the
product price that corresponds to that optimal level of output.
e. Explain in detail the steps required to determine if
maximum profit or minimum losses have been achieved. Be sure
you include the role of ATC and AVC.
f. You work for a firm that is a member of an oligopoly
market. Explain in detail the issues of collusion and why
collusion would be attractive to those firms.
g. You work for a firm that is a member of an
oligopoly market. Explain game theory and how the firm might
use this tool to achieve its business goals