Managerial Economics

Assgnment 2
1. Find the derivative (dy/dx) of the following functions:
(a)
Y=(1-X3)-2/(1+X2)
(b)

Y=(1+X)(X-1)-3(1+X2)3

(c)

Y=U-5 and U=2X3 - 3

Y=U3 +3U and X= -U2 + 10U

2. Suppose that GMs Smith estimated the following demand equation for Chevrolet
automobiles:
Qc = 100 - 100Pc + 2N + 50I + 30Pf - Pg+3A+40PI
where
Qc = quantity demanded per year of Chevrolet automobiles
Pc = price of chevrolet automobiles, in dollars
N = population of the US, in millions
I = per capita disposable income, in dollars
Pf = price of ford automobiles, in dollars
Pg = real price of gasoline, in cents per gallon
A = advertising expenditures by Chevrolet, in per dollars per year
PI = credit incentives to purchase Chevrolets, in percentage points below the rate
of interest on borrowing in the absence of incentives.
and average values of explanatory variables are Pc = 9000$, N = 200 million,
I = 10000$, Pf = 8000$ , Pg = 80 cents, A = $200 and PI = 1
(a) Find the value of Qc at the given avarage values of explanatory variables
(b) Indicate the change in the number of Chevrolets purchased per year (Q c) for each
unit change in the independent or explanatory variables.
(c) calculate the elasticity of sales with respect to each explanatory variable in the
demand function.
(d) Forecast the quantity demanded of Chevrolet automobiles (Qc) for the next year if
Pc reduces by 5 percent, N inreases by 2 percent, I rises by 5 percent, P f reduces

by 10 percent, Pg increases by 2.5 percent, advertising expenditures rise by 20

percent and PI remains unchanged.
(e) By how much should GM change its advertising if he wants his sales to be 20
percent higher than this year?

3. Given the following total revenue funtion:

TR= 11Q-Q2
a
b
c
d

Derive the total- revenue, avarage- revenue, and marginal-revenue schedules from
Q= 0 to Q=7.
On the same set of axes, plot the total revenue, avarage revenue and the marginal
revenue schedules of part (a).
With reference to your figure in part (b), explain the relationship among the total,
avarage and marginal- revenue curves.
Identify/find the output level where TR is maximum through schedule, graph and
mathematical approach.

4. How many types of demand function are there? In which type of demand are we most
interested in managerial economics? Why? Why do we study the other types of demand?