Principals of economics

GROUP-BASED ASSIGNMENT ECO201E MANAGERIAL ECONOMICS.

Question 1

(a) Assignment 2 You are taking two courses this semester: Economics and Mathematics. You have two examinations coming up in both classes. The table below shows your grade on each examination for different numbers of hours spent studying for each course:

Hours of Study	Economics	Mathematics
0	70	60
1	77	68
2	82	74
3	85	78

Your goal is to maximize your average grade on the two examinations. Use the benefit-cost analysis to decide how much time you would spend studying for each examination if you had three hours in total to prepare for the two examinations. Note: you can only choose to study in increments of one hour. In your analysis, identify the appropriate marginal costs and benefits, and explain how the economic concept of decision-making on the margin is used to solve the problem. (10 marks)

ANSWER

If ( 0 E , 3 M ) , the average grade of the two quiz is 74 . If ( 1 E , 2 M ) , the average grade of the two quiz is 75.5 ( correct ) If ( 2 E , 1 M ) , the average grade of the two quiz is 75 If ( 3E , 0 M ) , the average grade of the two quiz is 72.5 . Alternative : observe the increase and choose the larger option .

(b) When Steven graduated from university and got a job, his income rose from $15,000 to $60,000. His consumption habits also changed drastically. For instant noodles, his consumption falls from 7 packs a week to zero. For movies, his consumption rises from 1 per year to 11 per year.

Principals of economics

Question 2

a) Calculate his income elasticity of demand for both instant noodles and movies using the midpoint formula. (6 marks)

b) Explain how you would classify the two goods, instant noodles and movies, based on the income elasticity of demand. (2 marks)

c) Define what the income elasticity of demand measures. If more consumption is generally preferred to less consumption, why do some goods have negative income elasticities? (4 marks)

d) If the economy enters a recession, how would this affect the revenues of the seller of instant noodles and the movie theatre operator? Explain.