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Managerail Economics - Research Paper Example

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1. The ideas of consumer surplus and producers surplus can be used to measure the efficiency of competitive markets. Together, they comprise of the total surplus (Mankiw). In the graph below, we will show that the competitive market yields the highest total surplus, compared to below- or above-equilibrium levels of output.
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Managerail Economics
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Download file to see previous pages Obviously C&D and E&F are smaller than A&B.
2. The cross price elasticity of demand measures the responsiveness of the demand for one good to a change in the price of another good (Mankiw). In the assignment, products A and B are substitutes since the cross-price elasticity is postive, at +3.6. Products C and D with cross price elasticity of 5.4 are also substitutes. When the cross price elasticity is positive,it means that the demand for product 1 increases as the price of the other good increases,threfore they are substitues.
MU of prod A/price of prod A = MU of prod B/price of prod B = MU of prod C/price of prod C = MU of prod D/price of prod D = MU savings/price savings, which is equal to 36/$18 = 12/$6 = 8/$4 = 2/$1. The marginal utility divided by the price is equals to 2.

4. What are given:
Income from pottery sales = $ 72,000
Costs:
Helper = 12,000/ year yield on the $40,000 if invested = $4000/year
Rent = 5000/year salary as a potter = $15,000/year
Materials = $ 20,000/year
Equipment = $40,000
Entrepreneurial Talent = $3000
Acccounting profit (1st year)= $72,000 - 12,000 - 5000 - 20,000 -40,000 = -5000
On the 2nd year if there is no purchase of equipment = $72,000 - 12,000 - 5000 - 20,000 = $35000
Economic profit = $72,000 - 12,000 - 5000 - 20,000 -40,000-3000-4000-15,000
= -$27,000
On the 2nd year if there is no purchase of equipment = $72,000 - 12,000 - 5000 - 20,000 -3000-4000-15,000 = $13000
References
http://www.crawfordsworld.com. 23 April 2010 .
Mankiw, N. Gregory. Principles of Macroeconomics. 3rd. South-Western College Publishing, ...Download file to see next pagesRead More
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