# MGT 5064 Cost and Economic Analysis

MGT 5064 Cost and Economic Analysis – HOMEWORK 4 (50 points)SUMMER 2016- OnlineReading and Homework AssignmentDue: Tuesday, June 7, 2016 at 9/8 PM CentralChapter 3 Economic Foundations of CBA1. (25 points) Chapter 3 – Exercise 3.1A person’s demand for gizmos is given by the following equation:q = 6 – 0.5p + 0.0002Iwhere, q is the quantity demanded at price p when the person’s income is I. Assume initially that theperson’s income is \$40,000. Show your work/ calculations. Points will not be given without showinghow you get to your answers.a. (3 points) At what price will demand fall to zero? (This is sometimes called the choke pricebecause it is the price that chokes off demand.)b. (3 points) If the market price for gizmos is \$10, how many will be demanded?c. (3 points) Interpret the intercept and the slope parameter on p of the given demand function.d. (3 points) At a price of \$10, what is the price elasticity of demand for gizmos?e. (3 points) At a price of \$10, what is the consumer surplus?f. (4 points) If price rises to \$12, how much consumer surplus is lost?g. (5 points) If income were \$60,000, what would be the consumer surplus loss from a price risefrom \$10 to \$12?2. (14 points) Use the linear demand and supply curves shown below to answer the following questions:1MGT 5064 Cost and Economic Analysis – HOMEWORK 4 (50 points)SUMMER 2016- OnlinePS2522.520D12.552,0004,000Qa. (1 point) The market equilibrium price is \$______.b. (2 points) The economic value of the 2000 th unit is \$_______, and the minimum price producerswill accept to produce this unit is \$ ________.c. (4 points) When 2,000 units are produced and consumed, total consumer surplus is \$ ________,and total producer surplus is \$ _________. Show your work/ calculations.d. (1 point) At the market price in part a, the net gain to consumers when 2,000 units arepurchased is \$ ___________.e. (1 point) At the market price in part a, the net gain to producers when they supply 2,000 units is\$ ___________.2MGT 5064 Cost and Economic Analysis – HOMEWORK 4 (50 points)SUMMER 2016- Onlinef.(2 points) The net gain to society when 2,000 units are produced and consumed at the marketprice \$ __________, which is called ____________________________.g. (2 points) In market equilibrium, total consumer surplus is \$ _________________, and the totalproducer surplus is \$ ___________________.h. (1 point) The net gain to society created by this market is \$ ___________________.3

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