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Managerial Economics
Prof. Chien-Yuan Sher
Midterm
(PLEASE WRITE DOWN YOUR ANSWER IN THE ANSWER SHEETS.)
Multiple Choice (5 points for each problem; 40 points total)
1. Consider the global wheat (小麥) market. Assume that a drought (乾旱) is attacking in
Russia now, and it must seriously reduce wheat yield (產量) of Russia in this coming
summer. Both sellers and buyers expect that wheat price in the global market will be high
two months later. What will happen to the equilibrium price and quantity in the market
for wheat in this month?
a. The equilibrium price and quantity will have no change in this month.
b. The equilibrium quantity will increase but the equilibrium price will be uncertain.
c. The equilibrium price will increase but the equilibrium quantity will be uncertain.
d. The equilibrium quantity will decrease but the equilibrium price will increase.
2. People is moving out from Kaohsiung. How will this population trend (人口趨勢) affect
the housing market in Kaohsiung?
a. The housing price in Kaohsiung will not be affected by this trend.
b. The housing price in Kaohsiung will increase because Kaohsiung citizens will become
richer and richer (發大財).
c. The housing price in Kaohsiung will decrease in the long run.
d. The housing price will be uncertain but the equilibrium quantity will increase.
3. In the last winter, all domestic travelers in Southern Taiwan were subsidized (補貼) by the
government for their hotel payment. Which statement below is wrong?
a. The equilibrium hotel fee for one night in Southern Taiwan would increase.
b. This subsidy could increase the number of tourists in Southern Taiwan in the last winter.
c. The equilibrium hotel fee for one night in Southern Taiwan would not be changed by this
subsidy.
d. Innkeepers (旅店老闆) in Southern Taiwan would be benefited by this policy.
4. For a small firm whose relationship between labor input and its production rate is shown
in the table below. In the short run, assume that their fixed cost is 1000K, and the price for
one unit of labor input is 30K. What is the average cost when their production rate is 50?
a. 55
b. 44
c. 42 Labor input 10 20 30 40 50 60
d. 24
Production rate 15 30 40 50 60 65
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5. The demand for tea increases and tea producers begin earning economic profits. Assume
the tea industry is perfectly competitive. Compared to this new situation, in the long
run how are the price of tea and economic profits for tea producers most likely to change?
(108 中山企管所入學考)
a. The price of tea and economic profits for tea producers will both decrease.
b. The price of tea and economic profits for tea producers will both increase.
c. The price of tea will decrease, but economic profits for tea producers will increase.
d. The price of tea will increase, but economic profits for tea producers will decrease.
6. Suppose the demand for printers has the cross-price elasticity with respect to the price of
computer of -0.3. What will happen if the price of computers increases? (101 政大商學院
研究所入學考)
a. The supply of printers will decrease; the quantity demanded of printers will decrease.
b. The demand for printers will decrease; the quantity supplied of printers will decrease.
c. The equilibrium price of printers will decrease, but the equilibrium quantity of printers
will increase.
d. The equilibrium price of printers will increase, but the equilibrium quantity of printers
will decrease.
7. For the beef fried rice (牛肉炒飯) seller whose marginal cost (MC), average variable cost
(AVC), and average total cost (ATC) curve in the short run (in one week) are shown in the
diagram below. What is the profit-maximizing level of profit will this seller earn if the
price of each plate (盤) of beef fried rice is NT70?
a. NT 32,000
b. NT 18,000
c. NT 16,000
d. NT 14,000
8. Refer to problem 7. What is the possible profit-maximizing level of profit will this seller
earn if the price of each plate of beef fried rice is NT30?
a. NT 24,000
b. NT 0 $/plate
c. NT -8,000 MC
d. NT -18,000
AC
AVC
75
70
50
30
800 900 plates
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Calculation (Please write down your calculation process; 60 points total)
1. (14 pts) In 2019, if you want to buy a professional digital camera (專業數位相機) in
Taiwan, you have basically three options: Leica, Canon, and Nikon. Assume that the
demand for Leica has an own-price elasticity of -2.1, and the cross-price elasticity with
respect to the price of Canon of 0.4, and the cross-price elasticity with respect to the price
of Nikon of 0.3. The demand for Canon has an own-price elasticity of -3.2, the cross-price
elasticity with respect to the price of Leica of 1.2, and the cross-price elasticity with
respect to the price of Nikon of 1.5. The demand for Nikon has an own-price elasticity of
-2.5, the cross-price elasticity with respect to the price of Leica of 1.2, and the cross-price
elasticity with respect to the price of Canon of 1.3. Suppose the demand for Leica has an
income elasticity of 1.2.
a. By what percentage will a 2% decrease in the price of Leica affect total revenue on the
Leica? (4 pts)
b. By what percentage will a 2% decrease in the price of Leica affect total revenue on the
Canon? (3 pts)
c. By what percentage will a 2% decrease in the price of Nikon affect total revenue on the
Leica? (3 pts)
d. By what percentage will a 2% increase in consumers’ income affect total revenue on
Leica? (4 pts)
2. (19 pts) Assume that you run the only one restaurant selling lunch boxes in National
Museum of Marine Biology and Aquarium (NMMBA, 國立海生館). Their employees’
demand for lunch boxes is q = 7500 − 50𝑝𝑝 in each month. The total variable cost for
you to produce lunch boxes is 60q, where q is the number of lunch boxes you can sell in
each month. You should also pay a rent, NT50,000 per month, to NMMBA, and the
rental contract for the whole year is usually signed in the beginning of the year. If you
do not want to run this restaurant, you can work for NMMBA, and the salary is NT45,000
per month. Because you know the manager of NMMBA, if you want to work for them,
you can always choose to join their team in the beginning of the next month.
a. If you charges only one price for NMMBA’s employees (uniform pricing), what is the
profit-maximizing price? What is the incremental margin percentage for the price you
get? Please also calculate the own-price elasticity of employees’ demand for this price.
(9 pts)
b. What is your profit in each month for the price you get above? (4 pts)
c. Suppose that the manager gets a research grant for 5 years in this April, and he invites
you to join this project with a salary of NT70,000 per month. This project will start in
the coming August. Should you join this project four months later? Why? (3 pts)
d. Refer to Question 2.a, suppose that your restaurant is now allowed to sell lunch boxes
for tourists. The estimated own-price elasticity of tourists’ demand for lunch boxes is
around -3. If you can easily identify whether a buyer is a tourist, should you set a higher
price for tourists than that for employees? Why? (3 pts)
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3. (14 pts) Suppose the monthly demand for a certain good, in thousands of units (以千單位
來計算), is given by the equation Q = −0.5P + 70, and the weekly supply for the good is
given by the equation 2Q = 5P − 100, where P is the price per thousand units (元/千單
位).
a. What is the equilibrium price and quantity for this system? What is the own-price
elasticity of demand at the equilibrium? (6 pts)
b. Suppose a tax of $6 per thousand units (每一千單位收六元的稅), to be collected from
sellers, is imposed in this market. What is the equilibrium price and quantity for this
system after the taxation? (4 pts)
c. For the tax of $6, how much tax is really paid by the sellers, and how much tax is
shifted to the buyers (有多少稅賦被轉嫁至買方)? If I modify the demand curve so
that the elasticity you calculated in Question 2.a becomes -0.5 (but the equilibrium for
the Question 2.a is still the same), will the buyers pay more tax or not? Why? (4 pts)
4. (13 pts) Assume that you have a farm in Yujin, Tainan (台南玉井). You can rent this land
to your neighbor (the rent is NT200K per year), who will use this land for carambola
farming (楊桃種植), but you can also use your land for mango farming (芒果種植). If
you rent this land to your neighbor, you can work for Tsou-Ma-Lai Farm (TMLF; 走馬瀨
農場); the salary is NT490K per year. If you want to rent your lands to your neighbor and
work for TMLF as a formal employee, you can sign the contract for the whole year only
in each July (both for your neighbor and TMLF); you cannot join TMLF in the other
months.
If you want to do mongo farming, you can harvest mongos once per year (一年一穫).
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Assume that the total variable cost for mango farming is 15Q + (1/20)𝑄𝑄 �2, where Q is
the quantity of mongos (in kilogram) you harvest in one year. If you want to do mongo
farming, in each July, you should also sign a contract for the maintenance of irrigation
system (灌溉系統); the fee is NT 200K per year. You are a price-taker (a producer under
perfect competition).
a. If the price of mongos is NT45/kg, and you expect that the price will be also NT45/kg
in the next year, how many mongos should you produce to maximize your profit? What
is your maximized profit under this condition in the next year (from this July to the next
July) if you do mango farming? (8 pts)
b. Assume that the government wants to improve local economy in Yujin, and decides to
subsidize each mango farmers NT100K for the maintenance of irrigation system in this
coming July. If you and other mango farmers in Yujin have the same cost structure
(你和玉井的其他農民有同樣的成本結構), can this policy increase the production of
mangos in Yujin in the next year? Why? (5 pts)