Managerial Economics

Problem Set 1

Submission Date: Nov. 26, 2016

1. Suppose there are 120 identical buyers and 100 similar sellers in the market for teff and the annual
demand (for a quintal of teff) and supply functions of typical representative buyer and seller are Qd
= 45 – 0.25P and Qs = 0.1P – 6 respectively. What is the market equilibrium price? And how many
quintals of teff are transacted during a year?
2. Suppose that a household demands 50 units of oranges at the price 40 cents per piece. If the price
falls to the price 30 cents per piece, 100 oranges are demanded. What is the elasticity of demand
for Oranges? And interpret it. If the inverse supply function of a representative supplier in a market
of 20 similar
a. Suppliers of jeans is P= 0.1Qs + 0.5, then
b. What is the market supply function
c. What is the quantity supplied in the market if the price is Br 100?
d. What is equilibrium price if market supply function is Qs=5P-20?
3. With an 8% rise in the price of a commodity, the quantities demanded falls from 10 to 2 units.
a. Determines the price elasticity of demand and Interpret the result
4. Consider the following demand and supply equation. P = 20-0.5 Q and P = 16+0.5Q
a. Determine price elasticity of demand at the equilibrium point and interpret the result
5. Vik and Fleet produce trainers in the sports-shoe market. For one of their main products they have
the following demand curves:
Vik: PV =¼ 175- 1.2QV

Fleet: Pf= ¼ 125 - 0.8Qf,

Where P is in US$ and Q is in pairs per week. The firms are currently selling 80 and 75 pairs of their
products per week respectively.

a. What are the current price elasticities for the products?

b. Assume that Vik reduces its price and increases its sales to 90 pairs and that this causes a fall in Fleet’s
sales to 70 pairs per week. What is the cross-elasticity between the two products?