Managerial Economics Harvard Case Solution & Analysis

Question 1

            The calculations could be seen in the excel spreadsheet. As the income reduces by -4%, then, the demand for coffee would reduce by -7%.

Question 2

            As Pepsi and Coke had made a decision to advertise more of their products and they would also be advertising against any other generic soft drink available in the market, therefore, as the supply is already going to decrease, the demand for the generic soft drinks is also going to decrease as the demand for Pepsi and Coke is going to increase. The overall impact upon the equilibrium quantity and equilibrium price in the market of the generic soft drinks would be that their demand and their supply would both decrease.

            As the supply would be decreased, the prices would increase and as the demand would be decreased, more pressure would be placed upon the generic soft drink manufacturers to reduce their prices. Therefore, as the supply for generic soft drinks would decrease due to new tariff, the quantity would be lowered and the prices would be increased and the lower demand will both lower the quantity as well as the price son one thing is for sure that the quantity of the generic soft drinks would decrease for sure.

Question 3

            No, this is not an efficient use of the tax dollars because, if the price is held up in order to provide a stock pile of the helium, then the price would be above the market price as described in question. Therefore, more storage and more resources are devoted by the society then it would have been without this program. This is because the commercial users and the buyers will want helium to meet their production needs. Therefore, a better use of the tax dollars and the society would also be better off if the price of helium fells below the price in the market and this program is ended.

Question 4

            This statement is true because as the demand would be inelastic, there would be no change in the quantity demanded however, if the supply would decrease then the shortage in the market would also increase. This could be seen in the graph below:

            If the demand curve would have been elastic then the shortage would have been much less.

Question 5

  1. The equilibrium price of domestic oranges would increase and the demand would also increase. The graph is shown below:
  1. The impact on the orange juices would also be same as on oranges. The graph is shown below:

If the consumers decide to begin hoarding, then the supply would decrease however the demand would increase in the market and as a result of this the price of orange juices would increase and the quantity demanded would remain same. The graph is shown below:

  1. As a result of the exportation, the supply of the orange juices in the American market prices would decrease, and the quantity demand would increase. The graph is shown below:
  1. The final equilibrium prices are lower and the equilibrium quantity is same as compared to what they were originally in the market. The reason for this is that the changes are being caused by the individual changes in the supply and demand of the oranges and not any other factors.

Managerial Economics Case Solution

Question 6

            The equilibrium price in this situation would be $ 2.75 but on the other hand the ceiling price would be $ 0.75. One thing can be noticed that with the shortage of around 12 million transactions which are caused by the $ 0.75 ceiling price, each of the average customer has to spend about 1 minute extra in order to approach any other ATM machine. The opportunity cost of the time for each of the customer is around $ 20 an hour; therefore, $4 would be the non-pecuniary price for each of the ATM transaction. This is calculated as the wage time for the $ 20 per hour taken as a fraction of the time required to travel for searching of another ATM machine, which is 12/60. Therefore, the full economic price would be $ 4.75 per transaction under the price ceiling. The areas of the producer surplus and lost consumer surplus could be seen in the graph plotted below...................

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