Managerial Economics Numericals
Managerial Economics Numericals
Managerial Economics Numericals
When Q= 82.93
TR = 2000 * 82.93 – 10(82.93)²
= 97086.15
Since total revenue is maximun at Q= 97.07 units the required output is 97 units.
Q = 20K0.5 L0.5
If Q = 200
then,
200 = 20K0.5 L0.5
or, 200 = 20 (4/25 L)0.5 L0.5 (where, k = wl/r)
or. L= 25
and, K = 4/25 * 25
=4
Group B:
Attempt any four question:
4. If target profit is Rs. 6000 price per unit is Rs. 140 per unit variable cost is Rs. 60
and fixed cost is Rs. 40,000 find out the targeted quantity and revenue.
Answer:
Given,
Variable cost = Rs. 60/unit
fixed cost = Rs. 40000
Total cost (TC) = 60Q + 40000 ( Where Q is the output produced)
price per unit (P) = 140
target profit = Rs 6000/unit
We have,
profit (π) = 𝑇𝑅 − 𝑇𝐶
or, 6000- PQ – (60Q + 40000)
or, Q = 575.
Required output = 575 units and
Targeted revenue = PQ
= 575 * 140
= Rs. 80500.
To calculate accounting cost, we can add all business expenses together, such as:
● Manufacturing costs
● Labor
● Salaries
● Taxes
● Rent or mortgage
(Manufacturing costs) + (Labor, salaries and taxes) + (Facility costs) + (Any additional
expenses) = Accounting cost
Economic costs include accounting costs and implicit costs, which are hypothetical expenses
used when making a business decision to forecast potential profit. This means that economic
costs include both explicit and implicit costs. Accountants and business leaders use economic
costs when creating financial projections or determining the best strategic outcome, such as
reallocating funds or using a more efficient mode of production. Economic costs allow
accountants to take into consideration both the explicit accounting costs and the hypothetical
costs of a potential business decision.
Economic costs are important for businesses because they help them determine long-term
strategies and summarize the company's actual and potential values. Business leaders can use
these economic costs to determine which markets to exit or enter and can give investors the
confidence that the company has reconfirmed long-term value. The benefit of economic cost
analysis is finding the difference in cost among business options. For example, if a business has
determined the accounting costs to open a storefront in a new market are $400,000, then
accounting costs may allow them to consider:
8 To what extent the kinked demand curve model helps in explaining price rigidity under
oligopoly.?
Answer:
In many oligopolist markets, it has been observed that prices tend to remain inflexible for a very
long time. Even in the face of declining costs, they tend to change infrequently. American
economist Sweezy came up with the kinked demand curve hypothesis to explain the reason
behind this price rigidity under oligopoly.
According to the kinked demand curve hypothesis, the demand curve facing an oligopolist has a
kink at the level of the prevailing price. This kink exists because of two reasons:
Assumption:
Each firm in an oligopoly believes the following two things:
a. If a firm lowers the price below the prevailing level, then the competitors will follow him.
b. If a firm increases the price above the prevailing level, then the competitors will not follow
him.
There is logical reasoning behind this assumption. When an oligopolist lowers the price of
his product, the competitors feel that if they don’t follow the price cut, then their customers will
leave them and buy from the firm who is offering a lower price.
Therefore, they lower their prices too in order to maintain their customers. Hence, the lower
portion of the curve is inelastic. It implies that if an oligopolist lowers the price, he can obtain
very little sales.
On the other hand, when a firm increases the price of its product, it experiences a substantial
reduction in sales. The reason is simple – consumers will buy the same/similar product from its
competitors.
This increases the competitors’ sales and they will have no motivation to match the price rise.
Therefore, the firm that raises the price suffers a loss and hence refrain from increasing the price.
This behavior of oligopolists can help us understand the elasticity of the upper portion of the
demand curve (dP). The figure shows that if a firm raises the price of a product, then it
experiences a large fall in sales.
Hence, no firm in an oligopolistic market will try to increase the price and a kink is formed at the
prevailing price. This is how the kinked demand curve hypothesis explains the rigid or sticky
prices.
End............................