1. Week 3 Managerial Economics

2. Order of Business Homework Assigned Lectures Other Material Lectures for Next Week

3. Homework

4. Question 1. ( 20 points) (20%) Pashigian, p 41, Exercise 1-4

5. Question 2. ( 20 points) (20%) Pashigian, p 41, Exercise 1-5

6. Question 3. ( 10 points) (10%) A commodity has a demand function Q = 50 - 2 p. Compute the point price elasticity when the Q = 20.

7. Point Elasticity of Demand The point elasticity of demand is defined by Where Slope is the slope of the demand function

8. Question 4. ( 10 points) (10%) A commodity has a demand function Q = 50 - 2 p. Compute the arc price elasticity over the range Q = 20 to Q = 25.

9. Q = 100 – 2P P Q 50 100 20 60 64 18 Arc Elasticity

10. Question 5. ( 10 points) (10%) A government study has concluded that the demand for a commodity is Price Quantity 10 25 12 19 16 12 Compute the arc price elasticity when p changes from 12 to 16; when p changes from 16 to 12.

11. Question 5. ( 10 points) (10%) A government study has concluded that the demand for a commodity is Price Quantity 10 25 12 19 16 12 Compute the arc price elasticity when p changes from 12 to 16; when p changes from 16 to 12.

12. Question 6. ( 15 points) (15%) What would be the shape of indifference curves between Cours and Budweiser Beers for someone who is believes "A beer is a beer is a beer "

13. Question 6. ( 15 points) (15%) What would be the shape of indifference curves between Cours and Budweiser Beers for someone who is believes "A beer is a beer is a beer " C B

14. First Example We are going to do some special cases to illustrate how some special indifference curves look. I don’t care whether you have Coke® or Pepsi®, as long as it is cola. This is a case we talked about earlier, corresponding to perfect substitutes.

15. Coke and Pepsi \ Coke Pepsi 1 5 7 2 4 3 8 6

16. Coke and Pepsi \ Coke Pepsi 1 5 7 2 4 3 8 6

17. Coke and Pepsi \ Coke Pepsi 1 5 7 2 4 3 8 6 I1I1

18. Coke and Pepsi \ Coke Pepsi 1 5 7 2 4 3 8 6 I1I1 I2I2

19. Coke and Pepsi \ Coke Pepsi 1 5 7 2 4 3 8 6 I1I1 I2I2 I3I3

20. Question 7. ( 15 points) (15%) Explain why different people can have different indifference curves; why one individuals indifference curves can never cross".

21. Theory of Choice Assumption of Completeness Assumption of Transitivity More is Better than Less –If Basket A contains more than Basket B, then A is preferred to B

22. Assigned Lectures Elasticity The Theory of Choice More on the Theory of Choice More Applications of Indifference Curves

23. Elasticity

24. The Theory of Choice

25. More on the Theory of Choice

26. More Applications of Indifference Curves

27. Lectures for Next Week The Economics of Bads The Value of Time Consumer Surplus Applying Consumer Surplus Consumer Surplus and Deadweight Loss More on Consumer Surplus

28. The Economics of Bads

29. The Value of Time

30. Consumer Surplus

31. Applying Consumer Surplus

32. Consumer Surplus and Deadweight Loss

33. More on Consumer Surplus