QUESTION ONE

At TechSolutions Inc., the principles of managerial economics are instrumental in guiding

decisions related to what to produce, how to produce, and for whom to produce. These decisions
are crucial for the company's success in the competitive market environment.

1. What to Produce: Managerial economics helps TechSolutions Inc. in deciding what

products or services to offer in the market. This involves analyzing consumer demand,
market trends, and competitive landscape to identify the most profitable opportunities
(Keat & Young, 2013). For example, if managerial economics analysis reveals a growing
demand for cloud-based software solutions in the healthcare sector, the company might
prioritize developing and offering such products to capitalize on the market opportunity.

2. How to Produce: Efficiency and cost-effectiveness are key considerations in

determining how TechSolutions Inc. produces its goods or services. Managerial
economics techniques like cost analysis, production function analysis, and optimization
help in making decisions regarding the most efficient production methods, optimal input
combinations, and economies of scale (Mansfield et al., 2015). For instance, if the
analysis suggests that outsourcing certain non-core functions can reduce production costs
without compromising quality, the company might opt for outsourcing to specialized
vendors.

3. For Whom to Produce: Understanding the target market and consumer preferences is
essential in deciding for whom to produce. Managerial economics aids in segmenting the
market, identifying target demographics, and pricing strategies (Varian, 2014). For
example, if the analysis indicates that there is a demand among small businesses for
affordable project management software, the company might tailor its marketing efforts
and product features to cater specifically to this segment.

In summary, at TechSolutions Inc., managerial economics guides decision-making across all

aspects of production and distribution. By applying economic principles and analysis, the
company can optimize its resource allocation, maximize profits, and better serve its customers.

1
QUESTION TWO

a) To find the profit-maximizing price and output levels in each market, we first determine the
marginal revenue (MR) and marginal cost (MC) in each market.

Given the demand functions and total cost function:

Marginal Revenue (MR):

For the retail market:

TR1=P1Q1=60Q1-2Q12

𝑀𝑅1=60−4Q1

For the wholesale market:

TR2=P2Q2=40Q2- Q22

𝑀𝑅2=40- 2Q2

Marginal Cost (MC): 𝑀𝐶=8

To maximize profit in each market, we set MR equal to MC:

Retail Market:

𝑀𝑅1=𝑀𝐶

60−4Q1=8

4Q1=52

Q1=13

P1=60-2(13)=34

Wholesale Market:

𝑀𝑅2=𝑀𝐶

40−2Q1=8

2
2Q2=32

Q2=16

P2=40-(16)=24

 Retail Market: Price = 34, Output = 13 units

 Wholesale Market: Price = 24, Output = 16 units

b) Total Profits = Total Revenue - Total Cost

=𝑃1𝑄1+𝑃2𝑄2 – TC
=(34×13)+(24×16) –(10+ 8(13+16)=826−252=574=826−242=584

The firm’s total profits are 584.

c) Profit-Maximizing Levels with Equal Prices:

Setting the prices equal to each other gives;
60−2Q=40-Q
Q=20
P=40-20
P=20

Thus, with the same price in both markets, the profit-maximizing price and output are P = 20 and
𝑄=20 units.

Total Profits = Total Revenue - Total Cost Total Revenue

=𝑃Q – TC
=(20×20) –(10+ 8(20)=400−170=230

The firm’s total profits would be 230.

QUESTION THREE

𝑄Beef = 159,032 - 549.5𝑃 + 24.25𝐼 + 287.4𝑃c

𝑄Beef = 159,032 - 549.5(10) + 24.25(1000) + 287.4(8)

𝑄Beef = 159,032 – 5,495 + 24,250 + 2,299.2

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Q=180,086.2

a) Price elasticity of demand for beef:

∂Q P 10
ε P= =−( 549.5 ) =−0.031
∂P Q 180086.2

A 1% increase in the price of beef leads to about 0.031% decrease in Quantity of beef consumed.

b) Income elasticity of demand for beef:

∂Q I 1 00 0
ε P= =(24.25) =0.135
∂I Q 180086.2

A 1% increase in the disposable personal income leads to about 0.135% increase in Quantity of
beef consumed.

c) Income elasticity of demand for beef:

∂ Q PC 8
ε P= =(287.4 ) =0. 013
∂ PC Q 180086.2

A 1% increase in the price of chicken leads to about 0.013% increase in Quantity of beef
consumed.