# Managerial Economics Essay

8301 Words34 Pages
MBA
MANAGERIAL ECONOMICS
University Wide Individual Assignment (UWIA)
12th July 2013

PROBLEM SET #1
1. Complete the following table and answer the accompanying questions.

a. At what level of the control variable are net benefits maximized?

Net Benefit is also profit. The formula for this is MB = MC. As seen in the table completed above, after applying the formula then net benefit is maximized where Q = 106.

b. What is the relation between marginal benefit and marginal cost at this level of the control variable?

Where marginal benefit is equal to marginal cost (MB = MC), net benefit is maximized
2. Arcadia recently instituted an in-house
b. Which option has the greatest present value?

NPV = CF1 + CF2 + CF3 (1+i) (1+i) 2 (1+i) 3

Option A = 70,000 + 80,000 + 90,000 1+ .08 (1+.08) 2 (1+.08) 3 = 64,814.81 + 68,587.11 + 71,444.90 = 204,846.82

Option B = 50,000 + 90,000 + 100,000 1+ .08 (1+.08) 2 (1+.08) 3 = 46,296.30 + 77,160.49 + 79,383.22 = 204,840.01

Option C = 30,000 + 100,000 + 115,000 1+ .08 (1+.08) 2 (1+.08) 3 = 27,777.78 + 85,733.88 + 91,290.71 = 204,802.37

By calculating the present value of the three options, option A is the most attractive with \$204,846.82.

5. Consider a market characterized by the following demand and supply conditions:
Demand: PX = 50 -5QX Supply: PX = 32 + QX.
Graph the demand and the supply. Label the axis and the equilibrium. The equilibrium price and quantity are, respectively?

To find the equilibrium price and quantity, find the point where demand curve crosses the supply curve.

Demand = Supply  50 -5Qx = 32 + Qx  Q = 3
To find price, substitute 3 to Qx of demand or supply