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The document outlines an individual assignment for a Managerial Economics course, focusing on decision-making under risk, production functions in both short and long run, cost theory, and pricing/output decisions. It includes specific questions related to pricing strategies, production levels, and cost functions that require calculations and analysis. The assignment aims to assess students' understanding of economic principles and their application in managerial contexts.

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Tadele Molla
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38 views2 pages

Individual

The document outlines an individual assignment for a Managerial Economics course, focusing on decision-making under risk, production functions in both short and long run, cost theory, and pricing/output decisions. It includes specific questions related to pricing strategies, production levels, and cost functions that require calculations and analysis. The assignment aims to assess students' understanding of economic principles and their application in managerial contexts.

Uploaded by

Tadele Molla
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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ALKAN HSBT COLLEGE

Department of Management
Individual Assignment for the course Managerial Economics (10%)
1. (Decision Making Under Risk and Uncertainty) Suppose a firm producing a product
and the management wants to decide based on the following payoffs under different
pricing strategies under alternative state of nature.
Possible outcomes
Strategy High demand Moderate Demand Low Demand
Raise price 25 15 -10
No change 15 20 -5
Lower price 15 0 5

A) If the decision maker knows certainly about either of the two state of nature, what will
be the possible decision alternative?
B) If the decision maker knows nothing about the probabilities of the two states of nature,
what are the recommended decision using the optimistic, conservative, minimax
regret, and insufficient reason approaches?
C) If the manager estimates the probability of the occurrence of high, moderate, and low
demand of the market as 35%, 50% and 15% respectively, which decision alternative
will maximize the company’s profit? (using; Expected monetary value approach and
Expected opportunity loss approach)
2. (Production Function in Short Run) The manager of a plant calculated the cost at
different output levels. The result is in the table below:
Units of Labour Total Product (Units)
0 850
10 1,700
20 3,500
30 6,900
40 10,000
50 11,500
60 12,600
70 11,550
80 10,400
A) Find the average product and marginal product of labour for different levels of labour input.
B) Draw the graph of TP, AP, and MP of input and determine stage of production of the plant.
C) At what level of employment does total product is maximum? How much is its value?
D) At what level of employment does average product is maximum? How much is its value?
E) what is the optimal level of employment? How much will the total production at this level?

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3. (Production Function in Long Run) A firm makes an optimal production decision based
on its technology and prices of inputs. The inputs that are used are labour (L) and capital
(K). Suppose labour cost is $20 per unit and capital cost is $10 per unit.
A) What is the MRTS for production of 500 units?
B) If prices of inputs remain the same, will the MRTS change for production of 1,000
units?
C) If the firm employs 100 units of labour and 100 units of capital with the production
function: Q = 10K0.5L0.5, then is the firm optimizing its production decision? Why?
4. (Theory of Cost) Given TC = 20,000 + 4Q + 0.5Q2, then
A) determine the functions for: TFC, TVC, AFC, AVC, AC and MC
B) Determine the output level at which the ATC is at its minimum
5. (Pricing and Output Decisions) The total revenue and total cost equations of a perfect
competitive firm are: TR= 25Q and TC= 100+ 20Q +0.025Q2
A) Find the profit-maximizing level of output
B) What is the maximum profit?

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