1. Elasticity question 1
a. What, in general, does elasticity measures?
b. Who might care about the price elasticity of demand and why?
c. Who might care about the price elasticity of supply and why?
d. Who might care about the cross elasticity of demand and why?
e. Who might care about the income elasticity of demand and why?
f. The formula to calculate the coefficient of elasticity of demand is (percentage change in quantity demanded of product X) / (percentage change in the price of product X). If your boss tells you she is planning a price increase in product X and wants to know how many units will be purchased after the price change, does the formula give you enough info to answer the question? If yes, why? If no, why not?
i. Hint:
ii. Think about what the formula really says.
iii. Can you as the analyst actually collect all the information required to calculate the answer?
iv. what degree does it give you information about what might happen in the future?
g. List and explain all the measures of elasticity that were covered in the slides, including Elasticity of Demand, Supply, Income, and Cross Elasticity of Demand.
i.Please refer to the slides and audio to prepare this answer.
1. Elasticity of demand and supply should both have 5 interpretations of Elasticity. Income Elasticity should have 2 interpretations, and Cross Elasticity of Demand should have 3.
2. Elasticity question 2
a. Total Revenue Test
i. Explain the Total Revenue Test
ii. How might the info help the firm make better decisions?
b. List and explain in detail, the determinants of price elasticity of demand and give 2 examples for each one (do not use examples from the slides).
c. There are 4. Please refer to the slides and audio as you prepare your answer.
d. Relative to Elasticity of Supply, please explain the importance of time to the tomato farmer discussed in the slides and audio. How does time impact elasticity and the input utilization choices available to the tomato farmer? Please review the slides and listen to the lecture before you answer this question.
e. Cross elasticity of demand – 1
i. Explain what cross elasticity of demand actually tells us.
ii. Explain why a PepsiCo Executive would benefit from understanding cross elasticity of demand when evaluating a recommendation to lower the price of Doritos.
iii. How does understanding cross elasticity of demand support better decision-making?
f. Cross elasticity of demand – 2
i. Explain why an Analyst working for the Anti-Trust Division of the Justice Dept. (what is the job of the Anti-Trust Division of the Justice Dept.?) would benefit from understanding cross elasticity of demand when evaluating the proposed merger of Coca Cola Company and Pepsi.
3. Cost of Production 1
a. Explicit and implicit costs.
i. Explain the difference between explicit costs and implicit costs.
ii. Explain who would care about them and why.
b. The production function.
i. What does the production function tell us?
ii. What questions can it help a business answer?
iii. What information would you need if you were asked to construct your company production function?
1. Please remember, the production function will include much greater detail than just labor and capital.
iv. What departments would you call to get that info and why? (look at the organization chart of a typical business to get some insight into this.)
c. Short Run Production Relationships
i. List and explain each of the 3 Short Run Production Relationships discussed in the slides and audio and explain who in a business would care about each of them and explain how each might be used.
4. Cost of Production 2
a. Law of Diminishing Returns.
i. Explain the Law of Diminishing Returns, including the assumptions.
ii. Explain how understanding that law might help a business manager make better business decisions.
b. Short run production costs. There are 7 of these. Please review the slides and lecture to prepare your answer.
i.Explain each of the short run production costs and tell me how a business manager might use each of them.
c. Long Run ATC Please focus on the slides and audio to get the story on this.
What does the Long Run ATC tell us?
i. Explain how the long run ATC curve is derived.
ii. Explain how understanding that concept might help a business manager make better decisions.
iii. Where along the LRATC would a firm want to operate and why?
d. Economies of Scale
i.Explain economies of scale, constant returns to scale, and dis-economies of scale.
ii.Explain how understanding each of these concepts might help a business manager improve their decision-making.