ECO201e
Managerial Economics
Assignment 2 – Group-based Assignment
January 2015 Presentation
ECO201e Assignment 2
Group-based Assignment
This assignment is worth 30% of the final mark for ECO201e Managerial Economics.
The cut-off date for this assignment is 24th February 2015, 2359hrs.
This is a group-based assignment. You should form a group of 3 members from your seminar group. Each group is required to upload a single report to MyUniSIM via your respective seminar group. Please elect a group leader. The responsibility of the group leader is to upload the report on behalf of the group.
It is important for each group member to contribute substantially to the final submitted work. All group members are equally responsible for the entire submitted assignment. If you feel that the work distribution is inequitable to either yourself or your group mates, please highlight this to your instructor as soon as possible. Your instructor will then investigate and decide on any action that needs to be taken. It is not necessary for all group members to be awarded the same mark.
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Question 1
On a summer day, an increase of the temperature from 90 degrees Fahrenheit (°F) to 100 degrees Fahrenheit (°F) increases the ice cream consumption from 50 gallons to 100 gallons of a local ice cream shop.
(a) Describe the concept of a “temperature elasticity of ice cream.”
(10 marks)
(b) Calculate the temperature elasticity of demand for ice cream using the information provided.
(10 marks)
(c) Determine in what range of elasticity your result falls. Interpret your result on ice cream consumption.
(10 marks)
SIM UNIVERSITY Assignment 2 – Page 2 of 3 ECO201e Assignment 2
Question 2
Assume the market for fruit from a local fruit stand has the supply and demand curves given below.
P = 0.9 - 0.08 Q P = 0.1 + 0.02 Q
Where P is in dollars and Q is in hundreds of pounds. Use the information given to
(a) Find equilibrium price and quantity in the market.
(6 marks)
(b) Calculate consumer surplus at equilibrium.
(6 marks)
(c) Calculate producer surplus at equilibrium.
(6 marks)
(d) Determine total economic surplus.
(6 marks)
(e) Calculate and discuss the loss in total economic surplus if a price ceiling is imposed on the market at a price of $0.20.
(6 marks)
Question 3
Suppose the book-printing industry is competitive and begins in a long-run equilibrium.
(a) Draw a diagram describing the typical firm in the industry.
(15 marks)
(b) Hi-Tech Printing Company invents a new process that sharply reduces the cost of printing books. Explain the effect of this new process on Hi-Tech’s profits and the price of books in the short run when Hi-Tech’s patent prevents other firms from using this new technology.
(15 marks)
(c) Examine the long run effect when the patent expires and other firms are free to use the technology.
(10 marks)
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SIM UNIVERSITY Assignment 2 – Page 3 of 3