Economics of Enterprise Answers

53. For each of the following production functions, determine whether returns to scale are decreasing, constant, or increasing.

i) Q = 2k + 3L + KL

ii) Q = 20 K0.6 L0.5

iii) Q = 100 + 3K + 2L

iv) Q = 5Ka Lb, Where a+ b = 1

v) Q = K/L

8. What do you understand by exchange of two commodities? What are the necessary conditions for exchange? Explain Barter exchange. Discuss the problems associated with "Barter Exchange".

35. Demand for a managerial economics text is given by Q = 20,000 – 300P. The book is initially priced at $30:

i) Compute the point price elasticity of demand at P= $30.

ii) If the objective is to increase total revenue, should the price be increased or decreased? Explain.

iii) Compute the arc price elasticity for a price decrease from $30 to $20.

iv) Compute the arc price elasticity for a price decrease from $20 to $15.

71. A new pizza place, Fredrico’s opens in New York City. The average price of a medium pizza in New York is $10 and, because of large number of pizza sellers, this price will not be affected by the new entrant in the market. The owner of the Fredrico’s estimates that monthly total costs, including a normal profit will be

TC = 1000 + 2Q + 0.01Q2

To maximize total profit, how many pizzas should be produced each month? In the short run, how much economic profit the business will earn each month?

8. What do you understand by exchange of two commodities? What are the necessary conditions for exchange? Explain Barter exchange. Discuss the problems associated with "Barter Exchange".