Managerial Economics

Running head: MANAGERIAL ECONOMICS
Managerial Economics
Name of the Student
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1MANAGERIAL ECONOMICS
Executive Summary
The report divides in two sections each discussing different topic of microeconomics. Section
A mainly concerns with topics like change in demand and supply condition and associated
change in price and output, main characteristics of perfectly competitive market,
determination of equilibrium employment, computation of price elasticity of demand and
government solution to problems of market failure. Section B discusses aspect related to
supply and changes in business strategies following changes in market structure due to
change in regulatory policies.

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Table of Contents
Section A....................................................................................................................................3
Introduction................................................................................................................................3
Answer 1................................................................................................................................3
Answer 2................................................................................................................................9
Answer 3..............................................................................................................................10
Answer 4..............................................................................................................................12
Answer 5..............................................................................................................................14
Conclusion................................................................................................................................16
Section B..................................................................................................................................18
Introduction..............................................................................................................................18
Answer 1..............................................................................................................................18
Answer 2..............................................................................................................................21
Conclusion................................................................................................................................24
References................................................................................................................................25

3MANAGERIAL ECONOMICS
Section A
Introduction
This section analyzes different concept of microeconomics. The first aspect that the
section covers is the change in demand and supply and its impact of equilibrium. After that
the section discusses different features of perfectly competitive market. The marginal
productivity theory of distribution has been discussed to determine equilibrium employment
of labor. The estimation of price elasticity of demand has been done to evaluate the impact of
responsiveness of demand in response to price. Finally, the section discusses different
methods of government intervention to correct market failure.
Answer 1
a) Market for newspaper
Case 1
Salaries to journalists constitutes an important part of cost of newspaper. With
increase in salaries of journalists, cost of newspaper will increase. This will hamper supply of
newspaper in the town (Moulin 2014). As supply reduces, the supply curve in the newspaper
market will shift to left. Decline in supply reduces equilibrium quantity and raises
equilibrium price. This is described in the figure below.
Figure 1: Effect of an increase in salaries of Journalist

4MANAGERIAL ECONOMICS
When salaries of journalists’ increases cost of newspapers shifting the supply curve
inward to S1S1. With change in supply, the equilibrium shifts upward to E1. Price in the market
increase to P2 while equilibrium quantity declines to Q2.
Case 2
The big news event attracts more and more people to purchase newspaper. This
increases demand for the newspaper in the town. As demand expands, demand curve for
newspaper shifts to the left shifting up equilibrium price and quantity. Figure 2 illustrates
equilibrium adjustment in the newspaper market.
Figure 2: Impact of big news event in the newspaper market
As big news event increase demand for newspaper, the demand curve shifts outward
to D” D”. Price in the market increase to P1 and equilibrium number of newspaper increases
to Q1.
b) The market for St. Louis Rams (a professional football team) cotton T-shirts
Case 1
If the team (The Rams) win Super Bowl competition, popularity of the team
increases. This encourages people to buy more cotton t-shirt for supporting the team.

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Consequently, demand for St. Luis Rams t-shirt increases (Baumol and Blinder 2015). The
increase in demand shits t-shirt demand curve to the right. As demand expands, there is an
expansion of equilibrium price and equilibrium quantity.
Figure 3: Impact of winning Super Bowl competition
Increase in demand for St. Louis Cotton T-shirt is reflected from a rightward
movement of demand curve from DD to D1D1. Equilibrium in the market shift along the
supply curve to E2. Price of T-shirt increases to P2 and equilibrium number of T-shirt
increases to Q2.
Case 2
Cotton is a source of key input in producing cotton T-shirt. Increase in price of cotton
increases production cost of T-shirt resulting in a decline in supply of T-shirt. The decline in
supply causes a decline in equilibrium number of T-shirt and increase price of T-shirt.