__Section 1 Market demand and supply__

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**Q1** Suppose a demand function can be specified as: Q_{W}= 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__

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**Q2.** (a) Use the following function: Q_{W}= 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

Year | S&P | AAPL | MSFT | AMZN |

1998 | 28.6 | 2.119048 | 1.146035 | 9.6639 |

1999 | 21 | 1.51145 | 0.683641 | 0.42179 |

2000 | -9.1 | -0.71064 | -0.62848 | -0.79557 |

2001 | -11.9 | 0.472269 | 0.527378 | -0.30474 |

2002 | -22.1 | -0.34566 | -0.21962 | 0.745841 |

2003 | 28.7 | 0.491277 | 0.058801 | 1.785601 |

2004 | 10.9 | 2.01357 | -0.02375 | -0.1583 |

2005 | 4.9 | 1.232609 | -0.02133 | 0.064574 |

2006 | 15.9 | 0.180136 | 0.141874 | -0.1631 |

2007 | 5.5 | 1.334748 | 0.19223 | 1.347694 |

2008 | -37 | -0.56911 | -0.45393 | -0.44646 |

2009 | 26.5 | 1.469033 | 0.567901 | 1.623245 |

2010 | 15.1 | 0.530665 | -0.08432 | 0.338091 |

2011 | 2.1 | 0.25558 | -0.06987 | -0.03833 |

2012 | 16 | 0.314 | 0.028891 | 0.449278 |

2013 | 32.4 | 0.054212 | 0.400599 | 0.589628 |