ADDIS ABABA MEDICAL AND BUSINESS COLLEGE

COURSE: MANAGERIAL ECONOMICS

PROGRAM: MASTERS OF BUSINESS ADMINISTRATION

INDIVIDUAL ASSIGNMENT& WORKSHEET

Question no: 1, 3, 7, 9, 15, 17, 18, 19, and 21 are your individual assignment

INSTRUCTION:

BRIEFLY AND PRECISELY RESPOND TO THE FOLLOWING QUESTIONS. SHOW

ALL THE NECESSARY STEPS FOR QUANTITATIVE TYPES QUESTIONS (MAX
MARK= 30%)

1. Explain how managerial economics is similar to and different from Microeconomics

and Macroeconomics.
2. Briefly differentiate descriptive versus prescriptive Managerial economics and
substantiate your answer with hypothetical exam.

3. Kebede operates a small shop specializing in traditional coffee. He owns the building
and supplies all his own labor and money capital. Thus, Kebede incurs no explicit rental
or wage costs. Before starting his own business Kebede earned 1,000 birr per month by
renting out the store and earned 2,500 birr per month as a store manager for ABC
Company. Because Kebede uses his own money capital, he also sacrificed 1,000 birr
per month in interest earned on Ethiopian Treasury bonds. Kebedes’ monthly revenues
from operating his shop are 10,000 birr and his total monthly expenses for labor and
supplies amounted to 6,000 birr. Calculate Kebedes’ monthly:
a. Accounting profit
b. Economic Profit
4. What is principal agent problem and how it arises? Differentiate Owner
manager/principal–agent problem and Manager–worker/principal–agent problem?

5. Many owners of small businesses do not pay themselves a salary. What effect will
this practice have on the calculation of the firm’s accounting profit and Economic profit?
Explain.
6. Managerial economics has got some special characteristics. Mention and discuss at
least four characteristics of managerial economics.
7. A firm is an economic institution that transforms factors of production into goods and
services. Similarly firms are more efficient in coordinating production than market for a
number of reasons. Discuss clearly the main reasons that make firms efficient in
production than firms.
8. Why the normal demand curve for a commodity slopped down ward?
9. In theoretical microeconomics, the law of demand states that the quantity demanded
of a commodity is inversely related to its price, keeping all other factors constant.
However there are some exceptional to the law of demand. These are termed as Giffen
goods, Bandwagon and snob effects. Explain these exceptional and give practical
example for each of the cases.
10. Suppose that the total market demand for a product comprises the demand of three
individuals with identical demand equations given as below:
QD,1 =QD, 2 =QD,3 = 50 - 25P, then
a. What is the market demand product for this product?
b. Draw the graph for each individual demand curves and market demand in a
single diagram
11. Suppose price of Teff went up 10% in the year 2010, but its quantity purchased was
declined by 20%.what is the price elasticity of demand(Ed)?
12. Assume the slope of linear demand curve is -1.5 and the average price is 5 birr and
the average quantity demanded equals 25 units; then, calculate the price elasticity of
demand.

13. Suppose that a firm uses a plot of land (only fixed input) & 100 units of labor (the
only variable input) to produce 100 quintals of maize. What is TVC if the TC& AFC
are 300 birr & 2birr respectively?

14. Given L=6, W=40, AP=8& MP=5.Assume labor is the only variable input.

a. Calculate the MC& AVC;

b. In which stage of production is the firm operating?

15. The market demand and supply equations for a product are given as:

Qd = 300-3p
Qs = 100+ 5p where Q is quantity and P is price.
a. What are the equilibrium price and quantity for this product? Find Qd and Q s at
equilibrium?
b. Suppose that an increase in consumer income resulted in the new demand equation
is given as
Qd = 420 – 3p; what are the new equilibrium price and quantity for this
product?
c. Suppose the government enacts legislation that imposes a price ceiling equivalent to
the original equilibrium price. What is the result of (shortage or surplus using the new
demand equation stated in “b”) this legislation?
d. Diagram your result in “c” and interpret your result.
16. Define and give an example of each of the following demand terms and concepts.
Illustrate diagrammatically a change in each.
a. Quantity demanded
b. Demand
c. Market demand curve
17. At a price of $25, the quantity demanded of good X is 500 units. Suppose that the
price elasticity of demand is -1.85. If the price of the good increases to $26, what will be
the new quantity demanded of this good?
18. 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.
19. For each of the following production functions, determine whether returns to scale
are decreasing, constant, or increasing when capital and labor inputs are increased
from K = L = 1 to K = L = 2.
a. Q = 25K0.5L0.5
b. Q = 2K + 3L + 4KL
c. Q = 100 + 3K + 2L
20. 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?
21. A firm’s total cost function is
TC=12 + 60Q -15Q2 +Q3
Suppose that the firm produces 10 units of output. Calculate total fixed cost (TFC), total
variable cost (TVC), average total cost (ATC), average fixed cost (AFC), average
variable cost (AVC), and marginal cost (MC).