Section 1 Market demand and supply
Q1 Suppose a demand function can be specified as: QW= 400-3p, evaluate the point elasticity of demand when the price is $10. As a manager, will you continue to increase the price? Why?
(b) Imagine that your competitors increase the price of this good, as a manager, how will you respond to the price increase? Why?
Section 2: Estimating Demand and Total Revenue
Q2. (a) Use the following function: QW= 400-2p, to estimate the maximum total revenue.
(b) Plot the average, marginal, and total revenue curves (see pp.60-61) and Homework1.
(c) What is the maximum total revenue in monetary terms?
(d) Suppose marginal cost is $5, what will be the profit maximizing price. Remember to use the MC=MR rule and then solve for price.
Section 3 Regression Analysis
Q3 Refer to the S&P data. Using S& P as your independent variable select two companies and run a regression for the two companies while suppressing the intercept term.
(b) Interpret the results of your coefficients.
(c) Suppose you have been entrusted with the responsibility to manage a large amount of money, what managerial decision will you make in terms of investing the money in either of the companies?
Where S& P is for stock market return, AMZN is for returns on Amazon stock, AAPL is for returns on Apple stock, and MSFT is for returns on Microsoft stock