Master degree economics question need it in 24 hours

BUS500 – THEORY OF THE FIRM

PROBLEM SET #1

Name: _________________________________________

· Be sure your name is clearly included on a cover page with other relevant information.

· Use APA formatting.

· Be sure to have a reference list and that you cite all borrowed information and exhibits.

· Be sure to formally present your answers with complete sentences, multiple paragraphs (paragraphs should be single-topic, focused, and compact), and an introduction and conclusion.

· Be sure to submit only a single Microsoft Word® document with appropriate displays of work extracted from Excel worksheets or other sources.

· The question items are detailed, but answers can be short. Though answers can be short, answers should be complete and reveal understanding of the concepts and techniques. Answers should not be too long!

· Contact the instructor early and often with questions and requests for hints.

· Please find a Microsoft Excel® workbook with two worksheets. Questions #1 & #2 uses the “Transit Data” worksheet. Question #3 uses the “Manufacturing Costs” worksheet.

· If students do not have access to Microsoft Excel® (Windows version) that has the add-in “DataAnalysis,” other statistical software may be used. If students don’t have access to any statistical software, please contact the instructor early for assistance.

1. (30 points) In the Microsoft Excel® workbook entitled “Problem Set 1,” please find the worksheet labeled “Transit Data.”

a. Note the data set with variables listed below:

i. Weekly riders

ii. Price per ride

iii. Population

iv. Income

v. Parking Fee

b. Identify a dependent variable and the independent variables.

c. Calculate the mean value of all of the variables.

d. Theoretically predict and explain the relationship between the dependent variable and each of the independent variables.

e. Perform a regression analysis so as to estimate a demand equation using Microsoft Excel® DataAnalysis “Regression” procedure. (You must have access to a Microsoft Windows® based computer or contact the instructor directly.)

f. Evaluate the regression analysis results:

i. Explain what R2, the coefficient of determination, measures.

ii. Explain what the F-statistic—found in the ANOVA table analysis—measures.

iii. Explain whether or not the estimated coefficients are significantly different from zero. Your explanation should include discussion of the t-statistic and of the p-value.

g. For the estimated coefficients that are significantly different from zero, form and state a demand equation.

h. Explain if the estimated coefficient have the appropriate sign (positive or negative) that match your predictions. If not, guess what that may be.

i. Interpret the estimated coefficients by stating what the impact of a one unit change in the independent variable would be relative to the dependent variable.

j. Assume that you can use this equation to predict the value of the quantity demanded. Using the mean values of the independent variables and the demand equation that you have formed, calculate predicted values of the dependent variable when

i. Income is equal to $10,000 and all other values are at their mean values.

ii. Parking fee is equal to $2.25 (225 cents) and all other values are at their mean values.

iii. Population is equal to 1,500,000 (1500 thousands) and all other values are at their mean values.

2. (30 points) In the Microsoft Excel® workbook entitled “Problem Set 1,” please find the worksheet labeled “Transit Data”

a. Transform all the Transit data to natural logs ( =ln(A2) )Repeat question #1a-i.

j. Report the price elasticity of demand, the income elasticity of demand, and the cross-price elasticity of demand.

k. Relate whether the demand is own-price elastic, income elastic, or cross-price elastic.

l. Is the demand for transit a normal or inferior good?

m. Explain how one knows that the parking fee is the price of a substitute.

n. Given the price elasticity of demand that you calculated, should prices be raised or lowered? Explain.

o. Given the income elasticity of demand that you calculated and if you expect a recession this year which causes incomes to decline by 5%, what would be your prediction for weekly ridership? Explain.

p. Given the cross-price elasticity of demand that you calculated, what would be the impact of weekly ridership if parking fees were raised 10%? Explain.

3. (40 points) In the Microsoft Excel® workbook entitled “Problem Set 1,” please find the worksheet labeled “Manufacturing Costs.”

a. Calculate all the “total” and “per unit” costs. (averages and marginals are “per unit”)

b. On one graph, plot the total cost, total fixed cost, and total variable cost on the vertical with quantity (Q) on the horizontal.

c. On a second graph, plot the average fixed cost, average variable cost, average total cost, and marginal cost on the vertical with quantity (Q) on the horizontal.

d. Assume a perfectly competitive market structure and for the following four prices (marginal revenues)—assuming price (marginal revenue) is constant across all levels of production—determine the profit maximizing level of production: $1,200, $1,500, $1,800, $2,100.

e. Explain the economic decision rule and how it relates to where profit will be maximized relative to the calculations that you have performed on this data. Calculate the total revenue and profit.