Managerial Economics in Agribusiness

Worksheet

1. Define the concept of scarcity. Explain the significance of this concept in relation to the concept
of opportunity cost. Discuss why the concept of scarcity is central to the study of economics.
2. Explain how managerial economics is similar to and different from microeconomics. Discuss the
scope of managerial economics and how it’s important in agribusiness economics.
3. Economic optimization involves maximizing an objective function, which may or may not be
subject to side constraints. Do you agree with this statement? If not, why not?
4. The market supply and demand equations are given by: QD =200 -50P and QS =-40 + 30P;
a. Determine equilibrium price and quantity. Show graphically
b. If demand changes QD =300-50P and supply changes QS =-20 +30P; calculate market
clearing price and quantity
c. For b, show the changes graphically and the new equilibrium
d. If only demand changes to QD=300-50P, show the new equilibrium graphically and
indicate the amount of shortage
5. Discuss change in demand and change in quantity demand. Substantiate your discussion using
graphs. Why the slop of the demand curve is downward slopping?
6. Define and give an example of each of the following supply terms and concepts. Illustrate
diagrammatically a change in each.
a. Supply
b. Quantity supplied
c. Market supply curve
d. Technology
7. Suppose that the demand equations for heart surgery and cosmetic surgery are both linear. The
demand for heart surgery is more price inelastic than the demand for cosmetic surgery. Do you
agree? Explain.
8. Explain the following production terms and concepts;
a. Short run and long run production
b. Production function
c. The law of diminishing marginal product

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 9. Suppose that output is a function of labor and capital. Assume that labor is the variable input
and capital is the fixed input. Explain the law of diminishing marginal product. How is the law of
diminishing marginal product reflected in the total product of labor curve?
10. Discuss the three stages of production. Use graph to support your analysis
11. When the average product of labor is equal to the marginal product of labor, the marginal
product of labor is maximized. Do you agree? Explain.
12. What is the relationship between the average product of labor and the marginal product of
labor?
13. Suppose that a firm’s short-run production function has been estimated as Q = 6L - 0.4L 2
a. Calculate output maximizing level of L
b. Graph the TPP for values L = 0 to L = 10
c. What’s the MPP of labor equation? Graph it for values L = 0 to L = 10
d. What’s the APP of labor equation? Graph it for values L = 0 to L = 10
14. The average product of labor is given by the equation; AP L = 600 + 200L-L2
a. What is the equation for the total product of labor (TPP L)?
b. What is the equation for the marginal product of labor (MPP L)?
c. At what level of labor usage is APP L = MPPL?
15. Marginal cost is the cost of producing the “last” unit of output. Do you agree? If not, then why
not.
16. The total cost equation of a firm is given by the equation TC = 125,000 + 100Q + 0.5Q2
a. Determine the output level that minimizes average total cost.
b. Calculate ATC and MC at the level of output that will minimize ATC.
c. What is the firm’s total fixed cost?
d. What is the equation for the firm’s total variable cost (TVC)?
e. What is the equation for the firm’s average total cost (ATC)?
f. What is the equation for the firm’s marginal cost (MC)?
17. Suppose that the marginal cost function of a firm is MC (Q) = Q2 - 4Q + 5; and the firm’s total
fixed cost is 10.
a. Determine the firm’s total cost function.
b. What is the firm’s total cost of production at Q = 3?
18. Define market structure. Characterize the four main types of market structures. Which one is
best to optimize societal welfare? Why?

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 19. Firms in perfectly competitive industries may be described as price takers. What are the
implications of this observation for the price and output decisions of profit-maximizing firms?
20. To maximize total revenue, the monopolist must charge the highest price possible. Do you
agree? Explain.
21. Define market failure using examples.
22. Describe the main sources of market failure and discuss how these factors cause market failure
23. Explain how to correct and manage market failures. What is the roles of the government and
local institutions?

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