Assignment #2 Managerial Economics and Globalization

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Assignment #2
Mariela Silvestri
Olga Drepina
Managerial Economics and Globalization
October, 31st, 2011.

Assignment 2
Office building maintenance plans call for the stripping, waxing, and buffing of ceramic floor tiles. This work is contracted out to office maintenance firms, and both technology and labor requirements are very basic.

Supply and demand conditions in this perfectly competitive service market in New York are:

QS = 2P - 20| (Supply)|
| |
QD = 80 - 2P| (Demand)|

- Where Q is thousands of hours of floor reconditioning per month, and P is the price per hour.

A.| Algebraically determine the market equilibrium price/output combination.| | 2P -20 = 80-2P| | |
2P + 2P = 80 + 20| | |
4P = 100| | | |
P = 25| | | |
| | | |
Qs = 2(25) - 20 | Qd = 80 - 2(25)|
Qs = 50 - 20| Qd = 80 - 50|
Qs = 30| | Qd = 30| |
| | | |
Qs = Qd = Qe | | |
|
| |
B. Use a graph to confirm your answers.
For the graph, use:
Prices: 10, 20,30,40,50,60,70,80,90
Quantities:5,10,15,20,25,30,35,40,45,50,55,60,65
| |
| Thousands of hours/ month| Price/hour| Qs| Qd|
Q| P| Supply| Demand|
10| 10| 0| 60|
15| 20| 20| 40|
20| 30| 40| 20|
25| 40| 60| 0|
30| 50| 80| 0|
35| 60| 100| 0|
40| 70| 120| 0|
45| 80| 140| 0|
50| 90| 160| 0|
|

The figure below shows a firm in a perfectly competitive market:

a. Find the price below which the firm will go out of business.

The shutdown point is the point at which the price equals minimum average variable cost. In the short run the company will be out of business if the price goes below P2; because if the price falls further, the firm does not even cover its variable costs if it operates. Its loss if it operated thus exceeds the loss of shutting down and so the firm shuts down. In the short run, in a perfectly competitive market firms can earn an economic profit....
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