# Managerial Economics Solution

Suppose the Singapore government wants to decrease the domestic consumption of cigarettes to 300,000 packs a day, and wants to achieve this by imposing a tariff on sacks of cigarettes. What size tariff will achieve this objective? What are the amounts of consumer surplus, government revenue, and dead weight loss under this tariff? C. Now suppose the Singapore government issues and exclusive license to import cigarettes to one company. What will be the monopoly price and the resulting level of domestic consumption?

What are the levels of consumer surplus, producer surplus and dead weight loss? D. Now suppose under this monopoly the Singapore government wishes to reduce the domestic consumption of cigarettes to 300,000 packs per day. What size tariff goes the government need to impose in this scenario? What is the resulting profit for the monopolists, government revenue, consumer surplus, and dead weight loss? Solutions: a. The Supply curve is perfectly elastic at P=$4, so at P=$4, 50,000 4 800,000. So P=4 and Q = 800,000 Managerial Economics Solution By Johnny’s b.

Domestic consumption is 300,000 when the consumer price Pc satisfies, 300,000 50,000 . Or when PC=14. So the Excise tax equals 14-4 = 10. $/q Government Revenue = =

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Solution: a. So the new quantity purchased is 7. 5 b. Own price elasticity must be -1 c. Use the property that the sum of all elasticity equals zero. PEP,price of Bread + PEP, price of BP + PEP,I = O -0. 5+-1 + PEP,I 4) Consider a price taking firm that is operating in the short-run. (20 points) a. Provide a graph that depicts a scenario in which the optimal decision is to shutdown in the worth run. B. Provide a graph that depicts a scenario in which the firm earns negative profits in the short run but should continue to produce.

On this graph be sure to show the profit maximizing production level, total revenue, total costs, total variable costs, and fixed costs. C. Provide a graph that depicts a scenario in which the firm earns positive economic profits. Be sure to show the profit maximizing quantity, the level of profits, total costs, and total variable costs. On this graph identify the quantity at which the firm maximizes the average profit per unit (I. E. Margin. Explain why maximizing profit is not the same as maximizing margins. Solution: See Lecture 7. Apt Slides 12, 15, and 18. 5) Suppose a firm digs tunnels and can use either robots (R) or humans (H) to produce meter lengths of tunnels according to the production function M(R, H) = OR + AH. What are the conditional input demand functions for the robots and humans as a function of the number of meters M, price of robots PR, and the price of Human labor MR. = 6 and MPH = 2. So the firm will always choose to use only Robots if PR < 2 PH, only use humans if PR > 2 PH, and is indifferent between Robots and Humans if PR = PH. F so 2 if otherwise and The long run cost function is 6) Suppose the long run average cost function for producing palm oil is 1 5 20. 10 15 and the long run marginal cost is Also assume the market demand for Palm oil is 600,000 15,000 . In the long run competitive equilibrium what is the market price, market quantity, the production level of each firm, and how many firms will produce? (1 5 points) Solution: In the LIRE, P=rant TACT. Or 15 sq or At q* = 15 TACT ?10 which is where the market price converges to. At 600,000 1 5,000 10 450,000 So the number of firms = 450,000/1 5 or 30,000