MBA 501 Exercise 1
To be discussed on 9/5
1. When Burton Cummings graduated with honors from the Canadian Trucking Academy, his father gave him a $350,000 tractor-trailer rig. Recently, Burton was boasting to some fellow truckers that his revenues were typically $25,000 per month, while his operating costs (fuel, maintenance and depreciations) amounted to only $18,000 per month. Tractor-trailer rigs identical to Burton’s rig rent for $15,000 per month. If Burton was driving trucks for one of the competing trucking firms, he would earn $5000 per month.
a) How much are Burton Cummings’s explicit costs per month? How much are his implicit costs per month?
b) What is the dollar amount of the opportunity cost of the resources used by Burton Cummings each moth?
c) Burton is proud of the fact that he is generating a net cash flow of $7,000(-$25,000-$18,000) per month, since he would be earning only $5,000 per month if he were working for a trucking firm. What advice would you give Burton Cummings?
2. The demand for good X is given by
The demand for good X is given by Research shows that the prices of related goods are given by = $5,900 and = $90, while the average income of individuals consuming this product is M = $55,000. a) Indicate whether goods Y and Z are substitutes or complements for good X. b) Is X an inferior or a normal good?
c) How many units of good X will be purchased when = $4,910? d) Determine the demand function and inverse demand function for good X. Graph the demand curve for good X.
3. Suppose demand and supply are given by
a) What are the equilibrium quantity and price in this market? b) Determine the quantity demanded, the quantity supplied, and the magnitude of the surplus if a price floor of $42 is imposed in this market. c) Determine the quantity demanded, the quantity supplied, and the magnitude of the shortage if a price ceiling of $30 is imposed in this market.
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