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Principles of Managerial Economics

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Added on  2021-04-17

Principles of Managerial Economics

   Added on 2021-04-17

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Running head: PRINCIPLES OF MANAGERIAL ECONOMICSPrinciples of the managerial economicsName of the studentName of the universityAuthor Note
Principles of Managerial Economics_1
1PRINCIPLES OF MANAGERIAL ECONOMICSTable of ContentsAnswer 1:.........................................................................................................................................2Answer 2:.........................................................................................................................................4Answer 3:.........................................................................................................................................5Answer 4:.........................................................................................................................................5Answer 6:.........................................................................................................................................5Answer 7:.........................................................................................................................................7Answer 8:.........................................................................................................................................8References:......................................................................................................................................9
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2PRINCIPLES OF MANAGERIAL ECONOMICSAnswer 1: With the help of own price and price of relative commodities, it is possible to measurethe price elasticity of demand of a product, in the light of microeconomics concept. In thiscontext, the required concept of price elasticity is cross price elasticity, which is applicable tomeasure the same, when the concept of substitute goods and complementary goods are present.a) The cross price elasticity of substitute goods is intended to establish the relation betweenchanges in quantity demanded of a product due to a change in price of its substitute goods(Colchero et al., 2015). As beef and mutton are substitute goods, decreasing price of beef hasincreased the quantity demanded for mutton. Figure 1: Cross price elasticity between two substitute goodsSource: (created by author)
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3PRINCIPLES OF MANAGERIAL ECONOMICSThe above diagram has depicted a cross elasticity of demand with its positive slopebetween beef and mutton. An increase in price of beef by P0 P1 has decreased the quantitydemanded for mutton by Q0 Q1 unit. b) The impact of cross price elasticity for complementary goods has an opposite outcome.Increasing price of petrol has influenced the demand for cars to decrease (He & Yin, 2015).Hence, in this context, the economy is faced a cross elasticity of demand with negative slope. Figure 2: Cross price elasticity between two complementary goodsSource: (created by author)The above diagram has represented the negative cross price elasticity demand, where thequantity demanded for cars has decreased by Q1 Q0 unit when the petrol price has increased by P0P1 unit. c) As wheat, McDonald coffee and Sports car do not have any relation, that is, they are notsubstitute or complementary goods, changing price of one good does not influence the demand
Principles of Managerial Economics_4

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