Questions -
Please respond to all of the following questions in your own words:
Q1. What is economics for management? What is micro- and macro economics? Please give a micro and macro application for business management decision-making.
Q2. Please describe a demand curve and demand function. Please write an equation for a sample demand function and describe it (don't forget to include forecast error). How would you forecast sales of your product with the demand equation you wrote above? What is price and income elasticity of demand and show the equation for these? How would you measure these from the above demand equation? How are revenues affected from an increase in price with elastic and inelastic demand?
Q3. Please describe the method of least squares regression. Please show two graphs that represent relationships between Y and X that has uncertainty or forecast error and one that does not. Please show an example model from economics or finance that could be estimated with least squares. Please discuss and diagnose the following regression results of the estimated demand function for whole powdered milk. Can you get the price and elasticity from these results? Please explain.
NB: PB is price variable of powder milk
RB variable is GDP
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Table 1a: Estimation Results for WMP market demand in Brazil
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Dependent Variable: QB
Sample: 1990-2004
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Variable
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Coefficient
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Std. Error
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t-Statistic
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Prob.
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Intercept
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267.4043
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44.8179
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5.9664
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0.0000*
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PB
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-0.0689
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0.0277
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-2.4833
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0.0288**
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RB
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0.1444
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0.0139
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10.3425
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0.0000*
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R2
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0.8999
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F-statistic
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53.9549
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Adjusted R2
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0.8832
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Prob (F-statistic)
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0.0000
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Durbin-Watson stat
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1.5632
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Q4. & 5. Please discuss perfect and imperfect competition and the impact of competition on the shape of the demand curve. What are the attributes of a "perfectly" competitive and imperfectly competitive firm? Please give an example of a highly competitive and a highly imperfectly competitive product / industry. Please show graphically the relationship between the demand, total revenue and marginal revenue curves for a monopoly and perfectly competitive firms. Show graphically the price and sales level for economic profit maximization and no economic profit for a perfectly competitive and imperfectly competitive firm using the demand, marginal revenue, and costs curves. Please discuss pricing above marginal cost for an imperfectly competitive firm and price equals marginal cost for a "perfectly" competitive firm.