Question

1. Due to a shift in consumer taste, the demand curve for product X shifted steadily to the right. If one was to plot the price against quantity sold, would the resulting relationship approximate market demand curve? Explain.

2. Define economies of scope. Is this concept related to economies of scale? Explain.

3. Explain what is meant by the three stages of production?

4. A company has two million shares outstanding. It paid a dividend of $2 during the past year and expects that dividends will grow at 6% annually in the future. Stockholders require a rate of return of 13%. What would you expect the price of each share to be today, and what is the value of the company's common stock?

5. Explain the relationship between a firm's short-run production function and its short-run cost function. Focus on the marginal product of an input and the marginal cost of production.

6. How can companies reduce costs with supply chain management? In your answer, elaborate on the two working relationships between firms and suppliers.

7. Following are different algebraic expressions of the production function. Decide whether each one has constant, increasing, or decreasing return to scale.

a. Q = 75L0.5L0.75

b. Q = 75A0.15B0.4C0.45

c. Q=100+50L+50K

d. Q=L2+50K2

Answer 1

1).

A demand function shows the negative relationship between “price” and the “quantity demanded”, => as price increases implied the quantity demanded should fall and vice versa. So, if we want to plot demand function of a good “X” then if should be downward sloping. The following fig shows the demand curve for good X.

So, here if “P=P1” then the corresponding quantity demanded is “X1” and if “P” decreases to “P2” then the quantity demanded increase to “X2”. Now, let’s assume that the test of the consumer changes, => consumer starts demanding more of “X” at the same price at “P1”. So, in this case the demand curve will shift to “D2” and the quantity demanded increases to “X2” at the same price “P1”.