Managerial economic

Problem 8 llmpact of Shift ‘n Supply on Market Equilibrium):
Suppose government deddes to provide less direct subsidy to meat processors, and
this causes the supplv lunction shift to the lelt trom the enrarnple provided in the
Textbook. The new supply fraction is
oI = 150 + COP – 6oPM
aid the demand hinction is given by On = 286 – 2oP
where O. is quantity supplied (million kg per year). Ou is quantity demanded (milicn kg
per year). P is price of processed pork (81kg), PM is price of hogs (Sling) (a mq’cr input).
PM is price ot beet (Sling). and Y is per cmita mnual income (thousands ol CABS).
(Note: The currency here is Canadian dollar.)
(a) What is the supply function at average price of hogs P,“ = $1 .SOIltg? Show your
work. (2 points)
lb) Graph the supply and dsrnand curves and label the ‘nteroepts- What is the
economic meaning ol the intercept cl supply curve on quantity axis ? (4 points)
(c) Solve tor the market clearing price and quantity. Show your calwlaa’on steps;
Show the value of equ’librium price and quantity on your graph i1 (b). (4 po‘nts)
(d) Suppose the average price of hogs increased to $2.001kg. what is the new simply
luncticn? how does this altect the supply curve? What are the new maket clearing
quantity and price? Draw the new simply curve on your graph in (b) and mark the
new market clearing price and quantity. (6 po‘nts)
le) How do the new equiirium price and mantity in part ld) compare with he
original equilibrium price and quantity it part (c)? (2 polite)
Problem 9 [Cotton]:
According to a recent WSJ article. wet weather in Texas spurred expectations oi
ligher supply cl cotton. and cotton price fdls to a three-week low on May 18. 2015.
July cotton tuhrres, the most actively traded contract. closed down 2.9% at 64.92
cents a pound on the ICE Futures US Exchange. the lowest since Apri 22. (Optional
Reading #2 – Cotton)
Question: How does rain impact the cotton supply curve? Assuming demand curve is
fixed. ilustrate the impact oi rain on supply and equilibrium prices and quantities with a
gaph. (6 points)
eethltlee
Problem 10 (Demand Elasticitiesi:
Given the demand function for organic processed pork
On = 190- 2UP +2OPM + 2Y+ 152
where average P_ = SlflOlkg, average Yétzs thousands. aid Z : 1.
(a) What is the own price elasticity at the market equilibrium you have solved in
Problem? l2)? What is the economic meaning cl the value ol the ovrn price
elasticity? Suppose duing one week. the grocery store sets a promotion price for
pork that is slightly lower that the equilibrium price. will the revenue from pork
iicrease or decrease dur‘ng the promcb’on week? (6 points)
lb) What is the cross price elasticity between pork and beet at the average price ol
beet and the eouilibrium quantity solved in Problem? l2]?

Problem 8 l Impact of Shilt it Supply on Market Equilibrium):
Suppose government decides to provide less direct subsidy to meat processors, and
this causes the supply tunction shift to the left from the entarnple provided in the
Texboolt. The new supply fmction is
CII = 150 + lOP – 6oPM
aid the demand hinction is given by On = 286 – 2oP
where 0′ is quantity supplied (million kg per year). (llu is quantity demanded (milion kg
per year). P is prioe of processed pork (Sling), PM is prioe of hogs (81kg) (a mq’or input).
PM is prioe ot beet (Sling). and Y is per cmita mnual income (thousands of CABS).
(Note: The currency here is Canadian dollar.)
(a) What is the supply function at average price of hogs PM = $1 .SOIltg? Show your
work. (2 points)
lb) Graph the supplv and demand curves and label the iiteroepts- What is the
eoonomic meaning ol the intercept of supply curve on quantity axis ? (4 points)
(c) Solve lor the market clearing prioe and quantity. Show your (retaliation steps;
Show the value of equ’librium price and quantity on your graph it (b). (l po‘nts)
(d) Suppose the average price of hogs increased to $2.0(Nltg. what is the new simply
tunction? how does this attect the supply curve? What are the new maket dearing
quantity and prioe? Draw the new simply curve on your graph in (b) and mark the
new market clearing prioe and quantity. (6 po‘nts)
is) How do the new equiirium price and mantity in part (d) compare with be
original equilibrium price and quantity it part (c)? (2 po‘nts)
Problem 9 [Cotton]:
According to a reoent WSJ article. wet weather in Texas spurred expectations of
ligher supply of cotton. and cotton price fdls to a three-week low on May 18. 2015.
July ootton luhrres, the most actively traded contract. closed down 2.9% at 64.92
cents a pound on the ICE Futures US Exchange. the lowest since Apri 22. (Optional
Reading #2 – Cotton)
Question: How does rain impact the cotton supply curve? Assuming demand curve is
fixed. ilustrate the impact of rain on supply and equilibrium prices and quantities with a
gaph. (6 points)
netbltlee
Problem 10 (Demand Elasticitiesl:
Given the demand function for organic processed pork
On = 190- 2UP +2OPM + 2Y+ 152
where average P_, : Sl.00!kg, average Yétzs thousands. aid 2 : l.
(a) What is the own price elasticity at the market equilibrium you have solved in
Problem? (2)? What is the economic meaning of the value of the own price
elasticity? Suppose duing one week. the grooery store sets a promotion price for
pork that is slightly lower that the equilibrium prioe. will the revenue from pork
morease or decrease duriig the promol’on week? (6 points)
lb) What is the cross prioe elasticity between pork and best at the average price at
best and the equilibrium quantity solved in Problem? (2]? What is the eoonomic
meaning of the value of the cross price elasticity? {4 points)
(cl What is the income elasticity at the average per capita income of Y=$t2.5
thousands. and the equilibrium quantity solved it Problem? (2)? What is the

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Problem 8 llmpact of Shilt it Supply on Market Equilibrium):
Suppose government decides to provide less direct subsidy to meat processors, and
this causes the supply tunction shift to the lelt from the entarnple provided in the
Texboolt. The new supply fmction is
CII = 150 + lOP – 6oPM
aid the demand hinction is given by On = 286 – 2oP
where 0’ is quantity supplied (million kg per year). (llu is quantity demanded (milion kg
per year). P is prioe of processed pork (Sling), PM is prioe of hogs (81kg) (a mq’or input).
PM is prioe ot beet (Sling). and Y is per cmita mnual income (thousands ol CABS).
(Note: The currency here is Canadian dollar.)
(a) What is the supply function at average price of hogs PM = $1 .SOIltg? Show your
work. (2 points)
lb) Graph the supplv and demand curves and label the iiteroepts- What is the
eoonomic meaning cl the intercept ol supply curve on quantity axis ? (4 points)
(c) Solve lor the market clearing prioe and quantity. Show your (retaliation steps;
Show the value of equ’librium price and quantity on your graph it (b). (l po‘nts)
(d) Suppose the average price of hogs increased to $2.0(Nltg. what is the new simply
tunction? how does this attect the supply curve? What are the new maket dearing
quantity and prioe? Draw the new simply curve on your graph in (b) and mark the
new market clearing prioe and quantity. (6 po‘nts)
(e) l-lom do the new equiirium price and mantity in part (d) compare with he
original equilibrium price and quantity it part (c)? (2 po‘nts)
Problem 9 [Cotton]:
According to a reoent WSJ article. wet weather in Texas spurred expectations ol
ligher supply ol cotton. and cotton price fdls to a three-week low on May 18. 2015.
July ootton luhrres, the most actively traded contract. closed down 2.9% at 64.92
cents a pound on the ICE Futures US Exchange. the lowest since Apri 22. (Optional
Reading #2 – Cotton)
Question: How does rain impact the cotton supply curve? Assuming demand curve is
fixed. ilustrate the impact of rain on supply and equilibrium prices and quantities with a
gaph. (6 points)
netbltlee
Problem 10 (Demand Elasticitiesl:
Given the demand function for organic processed pork
On = 190- 2UP +2OPM + 2Y+ 152
where average P_, = Sl.00!kg, average Yétzs thousands. aid Z : l.
(a) What is the own price elasticity at the market equilibrium you have solved in
Problem? (2)? What is the economic meaning ol the value ot the own price
elasticity? Suppose duing one week. the grooery store sets a promotion price for
pork that is slightly lower that the equilibrium prioe. will the revenue from pork
morease or decrease duriig the promol’on week? (6 points)
lb) What is the cross prioe elasticity between pork and beet at the average price cl
beet and the equilibrium quantity solved in Problem? (2]? What is the eoonomic
meaning of the value of the cross price elasticity? {4 points)
(cl What is the income elasticity at the average per capita income ol Y=$t2.5
thousands. and the
Problem 3 (Shift in Demagl:

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Suppose due to population increase, the estimated annual demand function for
processed pork in Canada shifts to the right (compared to the example provided in the
Texbcglt). md the new demand function is

On : 190 – 2GP + 2oPM +2Y
where oa is quattity demanded (milicn kg per year). P is price of processed pork
{81kg}. P“. is price of beef (Mg). and Y is per capita annual ‘ncome (tfmsmds of
CADS). (Note: The currency ‘n this problem is Canarien dollar.)
(1) Are pork and beef substitutes or complements? (2 points)
(2) What is the demand ftnction at average PM : $4.001kg. average Y=Sf2.5
thousmds? Show your work. (3 points)
{3) Graph the demand curve. calculate and mark the value at the intercepts on both the
price axis and lie quantity axis- (4 points)
(4) What is the economic mean’ng of the intercept on the price axis of the demand
curve? (2 points)
(5) What is the economic mean‘ng of the intercept on the quantity axis of the demand
curve? (2 points)
(6) What is the slope of the demand curve? If the price of processed pork increases by
Stiltg. how does this affect the quality demanded for processed pork? (2 points)
(7) If average price of beef increases to $5-ooIkg and other vuiables do not diange.
what is the new demand function at average PM = 55.0%, average Y412-5
thousmds? Show your work. How does this afiect the demand curve? Draw the new
demand curve and show the ciection of its movement on vour graph in (3]. label the
itterceots on both price and wanitv axis. (Note: Indicate the cause of the demand
curve shift on your graph.) (7 points)
(8) Suppose average per capita income Y haeaees to $15 housands. and average
price of beef stays same at PM : sane/kg- What is the new demand function? How
does this affect the demand curve? Draw the new demand curve below includng the
origind demand curve ‘n the graph. show he direction of the movement of demand
curve. and label the intercepts on bolt price and quantity axis- (7 points)
Problem 4 (Supplv Function and Shift ‘n Supplvl:
Suppose you plan to estimate a Iinea supply function for apples in Cdifornia
oI = a 4- DP 4- bsz_ + b,W__ + bfi

Where oI is quantity supplyed (milicn kg per year). P is price of apples (31kg). P.” m.
is price of apple trees (Shree), wwis fum wage (Slhour). aid R is annud rainlall
(riches).

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(a) What is the expected sign for the estimate of b,? If prices of apple trees go up.

how does this affect apply supply? Draw the supply curve below and ‘ndicate the

inpact of price increase it maple tree- (4 points)
(b) What is the expected sign for the eeimate of b4? Currently Cdifornia is in a G‘OUQM,
if there Ml be more rain in the summer. how does his affect apple supplv in fall? Draw
the supply curve below and incicate lie impact of rainfall an apple supply. (4 points)
Problem 5 (Panera):
In response to changing consumer taste toward healthy food. Panera Bread has
committed to remove at least 150 artifiu’al sweeteners. colors. flavors and preservatives
from its menu by the end of 2016. (May 5. 2015 WSJ. Optional Reathg #1 – Panera)

(d) Suppose the average price of hogs increased to $2.00/kg. what is the new srpply
tunction? how does this attect the supply curve? What are the new maket clearing
quantity and price? Draw the new smply curve on your graph in (b) and mark the
new market dearing price and quantity. (6 poirts)
le) How do the new eguiirium price and mantity in part ld) compare with he
original equilibrium price and quantity it part (c)? (2 po’nts)
Problem 9 {Cotton}:
According to a recent WSJ article. wet weather in Texas spurred expectations of
ligher supply at cotton. and cotton price fdls to a three-week low on May 18. 2015.
July cotton iutures, the most actively traded contract. closed down 2.9% at 64.92
cents a pound on the ICE Futures US Exchange. the lowest since Apri 22. (Optional
Reading #2 – Cotton)
Question: How does rain impact the cotton supply curve? Assuming demand curve is
fixed. ilustrate the impact of rain on supply and equilibr’um prices and quantities with a
gaph. (6 points)
ostbltlee
Problem 10 (Demand Elasticitiesi:
Given the demand function tor organic processed pork
On =190 – 2oF +2oPw 4- 2V +152
where average P_ : Sl.001kg, average Y=$12.5 thousands. aid 2 : 1.
la) What is the own price elasticity at the market equilibrium you have solved in
Problem? [2)? What is the economic meaning of the value of the own price
elasticity? Suppose thing one week. the grocery store sets a promotion price for
pork that is slightly lower that the equilibrium price. will the revenue from pork
iicrease or decrease duriig the promob’on week? (6 points)
lb) What is the cross price elasticity between pork and best at the average price at
best and the equilibrium quantity solved in Problem? (2]? What is the economic
meaning of the value of the cross price elasticity? (4 points)
{cl What is the income elasticity at the average per capita income at Y=$12.5
thousands. and the equilibrium guantitv solved it Problem? [2)? What is the
economic meaning ol the value of the ‘ncome elasticity? (4 points)
Problem 11 (Supply Elasiu‘ty):
Given the supply iunction for processed pork.
oI = 150 + COP – 6oPM
What is the supply price elasticity for pork at the market eguilbrium you have solved in
Problems (c)?
Problem 12 {Pricim of Luxury Goods} Bonus Question 16 flimsy
For years luxury goods are priced between 25% and £096 higher it Chita that it
Europe excluiiig tax. However as more Chitese customer travel overseas and have
access to internet. Chilese consumers are shiit’mg their purchases of luxury goods from
within China to overseas to take advantage at the more affordable prices. As a result.
luxury sales with’n Chita tel 11% in 2014. but similar purchases made by Chinese
consumers overseas grew by 9%. You are hired as an Economist by he world‘s largest
luxury company. LVMl-l. to heb determine its pricing strategy in China to recover
revenue. What would you recommend? (Optich Reading 3 – Luxury Goods. WSJ.
6/13a‘2015)