SOLUTION: Managerial Economics Exercises Paper

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Required text: Managerial Economics, by Ivan PngConsider Troy’s MBA program:a) What is the relationship between the program’s average costs and the number of students in the program? Graph it out, supposing the current average cost is $10K per student/year with 30 full-time students. Do you think average cost will increase or decrease with more enrollment? Why?b) Is it potentially efficient to offer different concentrations to MBA students? Explain.c) Does the university price-discriminate? How?Draw graphs for both a pure monopolist who sets output where MR=MC and for a monopolist who is able to perfectly price discriminate. You may, for the sake of simplicity, assume that MC is constant (flat) in both cases. Label the deadweight losses (if any) for both graphs, and answer the following questions:a) Which is more efficient, in the economic sense?b) Which is better for consumers?c) Which results in higher monopoly profits?d) Normative question – is price discrimination a bad thing?Suppose Fred wants to open a pizza delivery service to compete with the current monopolist, Domino’s Pizza, in Springfield, Alabama. If Fred’s costs are higher than Domino’s, is it possible that he can still profit by setting a price above his marginal cost? How will Domino’s respond if Fred enters the market? Draw a graph to support your answer. Suppose Fred gives up and decides he can no longer compete with Domino’s at the current market price. Does Domino’s revert to monopoly pricing and output (MR=MC)? Why or why not? Is there any situation in which pure monopoly pricing could persist? Explain.Consider a home seller and buyer in terms of a game in form. Suppose the buyer either makes an offer or not, then the seller can respond by rejecting the offer, accepting it, or asking for a higher price. Draw it out, and create your own set of payoffs (it can be in dollars). Is there a stable equilibrium?Which market structure is the most efficient in a static sense? Which is most efficient in a dynamic sense? Explain your reasoning.APA1 day agoThere is no special requirement on how many words each question, but please make sure that all questions are answered completely.1 day agoAlso, if you are unsure of what I’m looking for in a question, please ask! The questions are oriented toward the material I posted in the modules, however some if it will be from your notes before the class transitioned online.1 day agoAll, these videos are just to review what we’d been covering before Spring Break. You should have almost all of this material in your notes. However, please start watching these videos (there are many, but they are short) and do so with your notes handy, so that you can follow along with the material in the videos. This is very important to review before we move forward into the next section on market structure and pricing strategy.Part 1: Diminishing Returns and the Production FunctionOne-minute introduction (Links to an external site.)More detailed explanation by Jacob Clifford (Links to an external site.)Part 2: CostsOne-minute introduction (Links to an external site.)Jacob Clifford on Short-Run Costs, Part 1 (Links to an external site.)Jacob Clifford on Short-Run Costs, Part 2 (Links to an external site.)Jacob Clifford on Short-Run Costs, Part 3 (Links to an external site.)Part 3: Economies of ScaleOne-minute introduction (Links to an external site.)Jacob Clifford on Economies of Scale and Long-Run Costs (Links to an external site.)Part 4: Types of ProfitEconomic Profit vs. Accounting Profit (Links to an external site.)Jacob Clifford on Types of Profit (Links to an external site.)1 day agoPart 1: Pure Competition IntroductionRemember how I said some textbooks call it “Perfect Competition” and others call it “Pure Competition”? It’s “perfect” in the sense that it’s a theoretical extreme of how competitive an industry could possibly be. But normatively that may or not be “perfect”. However, it’s an important baseline model. We start Market Structure by modeling the two extremes, Pure Competition and Pure Monopoly. Most of the real world of competition exists between these two extremes.Jacob Clifford on Profit Maximizing and Loss Minimizing in Pure Competition: (Links to an external site.)Jacob Clifford on Sunk Costs and Shutting Down: (Links to an external site.)Some explanation:The first example, where Total Cost is $120,000 and Total Revenue is $100,000 is an example of what happens when a firm will produce at a loss. Total Revenue is enough to cover their variable costs, but not all of their fixed costs. Fixed costs are sunk costs, so *in the short run* it makes sense to move on with the project. This will be in Part 2, but there is a difference between the short run and the long run. In the long run, a firm cannot continue to make losses indefinitely – they will shift resources to production with higher returns.The second example, where Total Costs are $150,000, is one where the firm should shut down? Why? Because the costs going forward are higher than the revenue that will come in. This is what happens to a firm that can’t generate revenue sufficient to cover its variable costs.Part 2: Pure Competition in the Short Run vs. the Long RunJacob Clifford on Pure Competition in the Short Run (Links to an external site.)Jacob Clifford on Pure Competition in the Long Run (Links to an external site.)This video isn’t as clear as the short-run video. However the basic mechanism is clear: When firms make losses in the long run, they start to leave the market. When they leave the market, Supply decreases (shifts to the left). With higher prices, the firms who remain are closer to breaking even. The stable long-run result is firms breaking even.If the price is high enough that firms earn economic profits, then new firms will enter the market, increasing Supply (which shifts to the right). That pushes prices down, and economic profits fade away. The downward pressure in price fades away once firms are breaking even.So firms breaking even (in economic terms, i.e. zero economic profit but positive accounting profit!) is the long-run equilibrium in Pure Competition.Part 3: Pure MonopolyMarginal Revolution University (MRU) on the Monopoly model (Links to an external site.)This video takes some patience, but it very clearly and precisely explains the most basic version of the monopoly model. And the process for finding Quantity (where MR=MC) and Price is the same process used in the other market structures.MRU on Monopoly “Markup” – i.e. why Monopoly Price is above Marginal Cost (Links to an external site.)Part 4: Price DiscriminationMRU on Price Discrimination (Links to an external site.)MRU on the Social Welfare of Price Discrimination (Links to an external site.)1 day agoPart 1: Monopolistic CompetitionJacob Clifford on Monopolistic Competition (Links to an external site.)The key feature of Monopolistic Competition is product differentiation. It’s arguably the *most* competitive market structure, in a dynamic sense.MRU on Monopolistic Competition and International Trade (Links to an external site.)Note that like Pure Competition, there is a long-run trend of firms breaking even. To make economic profits, firms must continually update their product, i.e. differentiate it from their competitors’.Part 2: Oligopoly and Game TheoryThe key feature of Oligopoly is that there is *no single model* of Oligopoly. There are multiple models used, but one of the most common ways to analyze Oligopoly is Game Theory.CrashCourse video on Game Theory and Oligopoly (Links to an external site.)Jacob Clifford on the Game Theory of Superhero movies (Links to an external site.)1 day agoThis is all the material published by the teacher. If you need it, you can use

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