Managerial Economics - Chapter Problems

Chapter 4 – Problem 8

A. In order for a variable to be significant the t value needs to be greater than 2. T value = coefficient value/std error. By this rule all the variables are significant except for population which has a t value of .4/.31 < 2. 93% is given by the value of R2.

B. Price elasticity = .3590.6*7.5/20000 = -1.34647 which means for every $1 the price goes up the demand declines by 1.34647*20000 or 26929.4 units. Cross price elasticity = 422.6*6.5/20,000 = 1.3736. This means that for every $1 a competitor’s price raises the demand rises by 1.3736*20000 or 27472 units.

C. This requires trend values of sales. The equation is in terms to quarterly sales only if the other values (except T) stay constant then comparing sales across two quarters is possible. All that can be said is that sales will rise across two years in any given quarter (4*356.1 = 1424.4 units). Sales will rise between T=1 and T=5 (which is 1 year) by 1424.4 units.

D. Prediction is good as R2 at 93% is high and T is significant.

E. Can be confident only if patterns in all six cities represent the entire nation.

Chapter 5 – Problem 6

= 40L – L2/200

MR = 40 – L/10

Marginal Revenue = Marginal Cost

40 –L/10=20

L = 200 units of labor are employed

Q (200) = 200 – (2002)/800 = 150 dresses are produced

Profit = Total Revenue – Total Cost

TR = 40Q = 40*150 = $6,000

$6,000 - $2,000 = $4,000 profit

MRP = MP*P = MC of Labor MP

= 1 – L/400 MRP = (1 – L/400)*50

= 20 so L =240 and Q

= 96 found by putting L in production function profit

=TR – TC = 5*96 – 240*20 = 0

Effect on MP will rise by 25%

5/4 (1 – L/400)

Equilibrium requires 5/4 (1 – L/400)*50 = 20 so 1 – L/400 = 8/25

Or L = 272 and Q = 179.52