Managerial Economics Unit 3

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Unit 3 Assignment

Student Name:

Please answer the following questions. Submit as a Microsoft Word® document to the Dropbox when completed.

1. Explain the relationship between the price elasticity of demand and total revenue.

An increase in price will lead to increase in revenue because the percentage increase in price will cause a smaller decrease in quantity demand should demand be price inelastic. An increase in price will lead to a decrease in revenue because the percentage increase in price will cause more reduction in quantity demanded should price be elastic.

2. Is the price elasticity of gasoline more elastic over a shorter or a longer period of time? Explain.

The price elasticity of gas is inelastic in the short period of time because gas would be needed for necessities (going to work and other necessary errands) no matter what the cost at the time because of the lack of any substitutes. However, in an extended period of time, people can develop alternatives by carpooling, re-locating closer to places requiring fuel powered conveyance in order to use less fuel, purchasing fuel conserving vehicles, walking, and biking to name a few hence becoming elastic and more responsive to fuel increases and either limiting or negating need for gas at all.

3. Determine whether each of the following is an explicit cost or an implicit cost:

a) Payments for rented manufacturing equipment

Explicit cost

b) A firm’s use of a warehouse that it owns and could rent to another firm

Implicit cost

c) Wages paid to the firm’s workers

Explicit cost

d) The wages the firm’s owner could earn if he worked for another company

Implicit cost

4. Consider the following information in the table for Pat’s Pizza Restaurant and answer the questions below.

Marginal Product of Capital | 4,000 |

Marginal Produce of...