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QUIZ 2 Answer

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Zia
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FINAL INTERNATIONAL UNIVERSITY

Managerial Economics (ECON 402)


Quiz 2
Spring 2023-24
Name Surname: _____________________ Student Number: ____________________

Duration:

1. Suppose a worker is offered a wage of $10 per hour, plus a fixed payment of $50. What is the equation for the
worker’s opportunity set in a given 24-hour day? What are the maximum total earnings the worker can earn in
a day? The minimum? What is the price to the worker of consuming an additional hour of leisure?

E= 50+ 10(24-L) E= 290 -10L MAX= 290 MİN= 50

The price of additional hour is 10

2. A consumer has $300 to spend on goods X and Y. The market prices of these two goods are:
Px = $15 and Py = $5.
a. What is the market rate of substitution between goods X and Y?

-PX/PY= - 15/5= 3

3. A consumer must divide $600 between the consumption of product X and product Y.
The relevant market prices are Px = $10 and Py = $40.
a. Write the equation for the consumer’s budget line.

PxX + PyY = M 10X+40Y=600

b. Illustrate the consumer’s opportunity set in as a diagram figure.

4. The preference ordering is assumed to satisfy four basic properties; what are these four basic properties? List
them and explain one of them in detail.

n Completeness
n More is Better
n Diminishing Marginal Rate of Substitution
n Transitivity

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5. The weekly demand for SonicBeats headphones is estimated to be:

Qx= 600 – 1.5Px + 2.5Py + 0.08M + 2 Ax

𝑃x is the price of SonicBeats headphones, 𝑃y is the price of competitor headphones, 𝑀 is the average
consumer income, and 𝐴x represents the amount spent on advertising for headphones.
Suppose SonicBeats headphones sell for $60 each, competitor headphones sell for $45, the company spends
$300 on advertising, and the average consumer income is $30,000.

a. Calculate the own price, cross-price, and income elasticities of demand for SonicBeats headphones.

600 - 1.5(60) + 2.5 (45) + 2(300) + 0.08 (30.000) = 3622.5

aPX/PQ

b. Interpret if the product is normal or inferior.

normal

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