Semester 1 2022/2023

Revision Guide
MGMT2020: Managerial Economics
Exam Information
• Date: Tuesday, December 6th, 2022
• Attempt Time: 2 Hours
• Available Time: 4:00pm to 6:00pm
• Type: Face-To-Face
• The exam will be conducted in-person on the UWI Cave Hill Campus.
• The exam will consist of 7 questions. You are only required to answer 4 of those questions.
• Topics to focus on for the exam will primarily range from Topic 4 to 7. However, questions from
Topics 1 to 3 will still come on the exam.
• There will be a range of short-answer questions, essay questions and calculation questions.

Exam Tips
• Start your revision early.
• If you want to, form study groups with other members of class where you can go through questions
together and concepts which you may have difficulty with.
• Make sure to have a calculator present with you when you are doing the exam.
• When doing the exam make sure to read the questions thoroughly to understand what the questions are
really asking for.
• You can practice on past exam papers found at this link: https://tinyurl.com/bdvyem5s
• Use the tutorials at your disposal, go over the questions and solutions practice them and ensure that
you know how best to answer the questions.
• Practice the questions included in this revision guide using the tutorial questions as reference.
• If you encounter any difficulty during the exam, contact me as soon as possible via email (
[email protected]).

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Review Questions
Question 1
Suppose that the total cost equation (TC) for the public utility monopolist is given by:
TC = 400 + Q2
Let the demand equation be given by:
P = 600 – 60Q
What is the profit-maximising price and quantity for this public utility company?

Question 2
Define the following types of costs and indicate which are considered relevant or irrelevant costs:
i) Incremental cost
ii) Historical cost
iii) Replacement cost
iv) Opportunity cost
v) Marginal cost
vi) Sunk cost

Question 3
Corporate takeovers (mergers and acquisitions) play a very important role in today’s business
environment. Critically discuss this statement.

Question 4
Define and state the characteristics and properties of the Cobb-Douglas Production Function.

Question 5
Explain the concept of credit rationing.

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Question 6
As the financial analyst of FLOW, a large multinational organization operating in the current economic
environment, you are to advise the management of FLOW on the numerous factors which should be
considered when determining the ideal financial structure in this competitive and unpredictable business
environment.

Question 7
a) What is price discrimination?
b) Why do firms practice price discrimination?
c) What are the types of price discrimination?
d) What conditions are necessary for price discrimination to be possible and profitable?

Question 8
Given the total cost function for:
TC = 1000 + 24Q – 2.40Q2 + 0.12Q3
Where Q is the output in thousands
a) Find the rate of output which results in minimum average variable cost.
b) What is the average variable cost at this level or output?

Question 9
The demand equation for European Cruises has been estimated as follows:
Q = 8,750 – 6.5P + 0.25Y
Where:
Q = the number of cruises demanded.
P = price of a cruise.
Y = annual income.
If P = $2000 and Y = $50,000
What is the income elasticity of demand for these cruises?

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Question 10
Define all three of the following models:
a) The Multi-Period Profit Rate of Growth Model
b) The Managerial Utility Maximising Model.
c) The Marris Model.

Question 11
Firms are not needed in the new global business environment. Critically discuss.

Question 12
A garment store operating a perfect competitive market environment has the following total cost equation:
TVC = 570Q – 55Q2 + Q3
Where Q is the quantity
Below what price should this garment store shut down its operations?

Question 13
Completely analyze the following demand equation for Suzuki cars:
Qx = 5.2 – 0.62Px – 1.08Py + 0.78I
(2.44) (-2.63) (2.79) (4.96)
n = 55; R2 = 0.926; figures in brackets are t’statistics
Where:
• Qx = quantity of Suzuki cars demanded.
• Px = price of Suzuki cars.
• Py = price of fuel.
• I = disposable income.

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Question 14
Given the case of a competitive market process dominated by few firms, assume that a two-firm duopoly
dominates the market for Canon printers, and that the firms face a linear market demand curve:
P = $1800 – Q
Where:
P = price.
Q = total output in the market (in thousands).

Thus, Q = QA + QB. For simplicity also assume that both firms produce an identical product, have no fixed
costs, and marginal cost MCA = MCB = $120. In this circumstance, total revenue for firm A is:
TRA = $1,800QA – QA2 – QAQB
Marginal revenue for firm A is:

MRA = ∂TRA/∂QA = $1,800 - $2QA – QB

Similarly, total revenue and marginal revenue curves hold for firm B.
i) Derive the output reaction curves for firms A and B.
ii) Calculate the Cournot market equilibrium price/output solutions.

Question 15
Explain any two reasons why economic profits vary.

Question 16
Explain the difference between price elasticity and inelasticity.

Question 17
Explain three important uses of the production function to managers.

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Question 18
Explain the concept of a shut-down point for a firm.

Question 19
Explain why monopolistically competitive firms may unfortunately be associated with inefficiency.

Question 20
“The existence of firms has diminished since the onset of the COVID-19 pandemic.” Critically discuss the
above statement, taking into account the arguments of Ronald Coase and Oliver Williamson.

Question 21
Define and give examples of two models of oligopoly you are familiar with.

Question 22
Given the total cost function for a St Lucian Construction Company is:
TC = 1250 + 10Q – 0.9Q2 + 0.06 Q3

Where Q is output in thousands (For example if output is 5000 then Q = 5).

(a) Find the rate of output that results in minimum average variable cost. What is the average variable cost
at this level of output?
(b) Suppose the output level for the company was 10,000 units, calculate the following values:
i. The marginal cost at this output level.
ii. The average total cost at this output level.
iii. The average fixed cost at this output level