MBA 720 – Applied Economics for Business Leaders
MBA 720 – Applied Economics for Business Leaders
Answer your questions in an MS word document. Total number of pages should NOT exceed 4 pages.
Make your answers simple and clear; state your assumptions clearly, consider only the impact of the change in question.
Questions:
- Due to the pandemic, the Fed has kept interest rates close to 0% and recently, the market has observed a shortage of lumber. What are the impacts of these changes on the market for houses, explain how these changes affect the demand for houses and/or supply of houses? Indicate whether equilibrium price and quantity increase, decrease or stay the same.
- Explain how an increase in nurses’ salaries affects the demand for medical care and/or supply of medical care. Indicate whether equilibrium price and quantity increase, decrease or stay the same.
- The demand curve for haircuts at Tanas Hair Design is given with the following equation P = 40 – 0.40Q where Q is the number of cuts per week and P is the price of haircuts. At a price of $15, should Tanas raise the price of the haircuts? Why or why not? Show your work.
- Suppose that your factory’s total product is as follows:
| Num. of workers (Labor) | Total Product (Q) | Fixed Cost | Variable Cost | Total Cost | Average Cost | Average variable cost | Marginal Cost |
| 6 | 1 | ||||||
| 10 | 2 | ||||||
| 13 | 3 | ||||||
| 15 | 4 | ||||||
| 18 | 5 | ||||||
| 23 | 6 | ||||||
| 30 | 7 | ||||||
| 40 | 8 |
- If labor costs $3 per unit, and you have fixed costs of $50, determine variable cost, total cost, average cost, average variable cost and marginal cost.
- Only one firm produces and sells soccer balls in the country of Ulke, and as the story begins, international trade in soccer balls is prohibited. Given the following equations, where Q is quantity, and P is the price measured in Ulkenian dollars:
Demand: P = 10 – Q
Marginal revenue: MR = 10 -2Q
Total Cost: TC = 3 + Q + 0.5 Q2
Marginal Cost: MC = 1 + Q
- How many soccer balls does the monopolist produce? What price are they sold? What is the maximum amount of profit? Show your work.
- One day, the King of Ulke decrees that henceforth there will be free trade – either imports or exports – of soccer balls at the world price of $6. The firm is now a price taker in a competitive market. What happens to domestic production of soccer balls? To domestic consumption? Does Ulke export or import soccer balls? Show your work.
- The market for pharmaceutical drugs takes on both monopolistic competition and monopoly market structures. When a firm discovers a new drug, patent laws give the firm a monopoly power. But eventually, the firm’s patent expires, and any company can make or sell the drug. What should happen to the price of a drug when the patent expires?
- If the government were to increase income taxes, how would that affect output (RGDP) and the price level in the short run? In the long run? Describe how the aggregate supply and aggregate demand curves would be affected? How should uncertainty about the size of fiscal multipliers affect the reliance on monetary and fiscal policy as tools for stabilizing the economy?
- Review the attached Knowledge@Wharton article “Inflation: What Lies Ahead?
Every discussion has been “all inflation, all the time” over the past few weeks. The
