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Home Work 1

This document provides the details and instructions for Homework 1 in the Managerial Economics course at the Indian School of Business, including 6 problems related to demand and supply analysis, elasticity, opportunity cost, and comparative advantage. Students are instructed to show their work and adhere to the honor code when completing the assignment, which is due on June 26 at 1pm and must include their names, IDs, and group information.

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66 views2 pages

Home Work 1

This document provides the details and instructions for Homework 1 in the Managerial Economics course at the Indian School of Business, including 6 problems related to demand and supply analysis, elasticity, opportunity cost, and comparative advantage. Students are instructed to show their work and adhere to the honor code when completing the assignment, which is due on June 26 at 1pm and must include their names, IDs, and group information.

Uploaded by

shreyabatra
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Managerial Economics

Indian School of Business


DHM 1, 2021-22

HOMEWORK 1
Due: Saturday, June 26 at 1 pm

Please write the names of ALL group members, their ID numbers, group name and section clearly
on your answer script.
You must adhere to the honor code while doing this assignment. This is a CODE 2N-b
assignment.

Show all intermediate steps (for full and partial grades).

Problem 1
A computer products retailer purchases laser printers from a manufacturer at a price of
Rs. 25,000 per printer. During the year, the retailer will try to sell the printers at a price
greater than Rs. 25,000, but may not be able to sell all the printers. At the end of the year,
the manufacturer will buy back any unsold inventory at 40 percent of the original price.
No one other than the manufacturer would be willing to buy these unsold printers at the
end of the year.
a. At the beginning of the year, before the retailer has purchased any printers, what
is the opportunity cost of a laser printer?
b. After the retailer has purchased the laser printers, what is the opportunity cost
associated with selling a laser printer to a customer? (Assume that if this customer
does not buy the printer, it will be unsold at the end of the year.)
c. Suppose that on December 1, the retailer still has a large inventory of unsold
printers. The retailer has set a retail price of Rs. 30,000 per printer. The manager
of the store proposes that they should cut the price by half and sell the printers at
Rs. 15,000 each. The owner of the store disagrees, pointing out that at Rs. 15,000
each, they would lose Rs. 10,000 on each printer sold. Is the owner’s argument
correct?

Problem 2
Consider the demand curve for the latest wearable fitness device, QD = 40,000 - 4P.
a. Plot the demand curve
b. Find the price and quantity at which the demand is unit elastic
c. Compute the elasticity of demand when the staring price is
i. Rs. 2,000
ii. Rs. 1,000

Problem 3
Suppose Sandhya and Manhar are 2 individuals considering ordering pizza, and you do not
observe their individual demand curves. However, you overhear a conversation between
them in which Sandhya says that she is going to spend 600 Rupees on pizza, no matter
what the price of each pizza. To this Manhar responds that he doesn’t care about the price
either, and is going to order exactly 2 pizzas. Based on this conversation, what can you
conclude about Manhar’s and Sandhya’s price elasticity of demand for home-delivered
pizza? (In case you need to make an assumption in order to proceed, assume that pizza is
perfectly divisible)

Problem 4
The demand curve for pedicures is given by: QD = 20 - 4P + 0.2I, where P is the price of a
pedicure, and I is the average consumer income. Assume that I is 400.
a. What is the consumer surplus when P is 15? By how much does the consumer
surplus change if P falls to 10?
b. At a market price of 20, what is the pedicurist’s revenue? Suppose the pedicurist
wants to increase her revenue. Should she increase or decrease the price of a
pedicure?
c. Assume now that consumer income increases to 500. What is the consumer surplus
at P = 15?

Problem 5
Suppose you are analyzing the demand for buttermilk at the Goel dining hall at the
ISB Hyderabad campus. Consider each of the following scenarios and explain
whether it would lead to an increase, decrease, or no change in demand:
a. Term break
b. A thunderstorm that brings down the temperature by several degrees
c. A decrease in the price of buttermilk
d. A decrease in the price of watermelon juice
e. A decrease in the price of photo copying
f. The latest campus fad – “veganism”
Problem 6
Suppose there are 2 countries, X and Y, capable of producing 2 goods: sense and
nonsense. The output per worker in Country X is 8 units if the worker produces sense
and 4 units if he/she produces nonsense. In Country B, the output per worker is 6
units of sense or 2 units of nonsense. What is the pattern of absolute and comparative
advantage?

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