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Homework 1

Chapters 1&2

The following asks you to provide a short answer to each of the learning objectives outlined at the beginning of this chapter and prepare you for the quiz.

LO1 Summarize how goals, constraints, incentives, and market rivalry affect economic decisions.

LO2 Distinguish economic versus accounting profits and costs.

LO3 Explain the role of profits in a market economy.

LO4 Apply the five forces framework to analyze the sustainability of an industry’s profits.

LO5 Apply present value analysis to make decisions and value assets.

LO6 Apply marginal analysis to determine the optimal level of a managerial control variable.

LO7 Identify and apply six principles of effective managerial decision making.

LO8-Explain the laws of demand and supply, and identify factors that cause demand and supply to shift.

LO9 Calculate consumer surplus and producer surplus, and describe what they mean.

LO10 Explain price determination in a competitive market, and show how equilibrium changes in response to changes in determinants of demand and supply.

LO11 Explain and illustrate how excise taxes, ad valorem taxes, price floors, and price ceilings impact the functioning of a market.

LO12 Apply supply and demand analysis as a qualitative forecasting tool to see the “ big picture” in competitive markets.

LO13 Apply various elasticities of demand as a quantitative tool to forecast changes in revenues, prices, and/ or units sold.

LO14 Illustrate the relationship between the elasticity of demand and total revenues.

LO15 Discuss three factors that influence whether the demand for a given product is relatively elastic or inelastic.

LO16 Explain the relationship between marginal revenue and the own price elasticity of demand.

LO17 Show how to determine elasticities from linear and log- linear demand functions.

LO18 Explain how regression analysis may be used to estimate demand functions, and how to interpret and use the output of a regression.