Managerial Economics
December 2020. Final Exam.
You have 1.5 hours to complete this exam. It is out of 90 points.
Once you move forward to another exercise, you cannot come back.
Under each exercise is stated the approximate amount of time you should spend on the
exercise, so use your time wisely. Please make sure you are clear about the question of the
exercise you are addressing.
Please note: I don’t expect graphs since all of this is on Blackboard.
Good luck.
Exercise 1
This exercise represents 25 points out of 90. You should spend around 30 minutes and no
more than 35 minutes on it.
Consider the market for ice-cream in Paris. Explain clearly and concisely in words your answers
to the questions below.
1. If I wanted to represent this in a diagram, what would the horizontal axis be? (0,5 points).
2. What would the vertical axis be? (0,5 points)
3. What would the demand curve look like? (0,5 points)
4. Why? (1 point)
5. What would the supply curve look like? (0,5 points)
6. Why? (1 point)
7. Where would the “equilibrium” be? (0,5 points)
8. What would define it? (1, 5 points)
9. What would happen to the supply curve if there was a lockdown? (1 point)
10. Why? (1 point)
11. What would happen to the demand curve if there was a lockdown? (1 point)
12. Why? (1 point)
13. What effects would this have on quantity traded? (1 point)
14. Why? (1 point)
15. What effects would this have on price? (1 point)
16. Why? (1 point)
17. If a government decides to put a minimum price on ice-creams, who would it try to
protect? (1 point).
18. What would be the outcome of this minimum price? (3 points)
19. If a government decides to put a maximum price on ice-creams, who would it try to
protect? (1 point).
20. What would be the outcome of this maximum price? (3 points)
21. Why would you criticize these measures of minimum and maximum prices from a
microeconomic standpoint? (3 points).
Exercise 2
This exercise represents 17 points out of 90. You should spend around 20 minutes and no
more than 30 minutes on it.
Imagine there’s a monopoly called Ghez. It sells a good called “Education”. It faces a demand
given by P = 45 – 2Q (where P is price and Q is quantity) and a marginal cost of 9 (no other
costs).
1. Write down Ghez’s profit function. (1 point)
2. How much should it produce? State your assumptions. Show your work. (3 points)
3. How much should it price? (1 point)
4. Imagine it gets cut up in two because lawmakers think it has become too influential.
Now, there are two companies, HEC and HEB producing education. Write down HEC’s
profit function. (1 point)
5. What does the quantity that HEC should be producing depend on? Show your work. (4
points)
6. State how much HEB should be producing. (1 point)
7. Imagine HEC produces 6. How much should HEB produce? (1 point)
8. Imagine HEB produces 6. How much should HEC produce? (1 point)
9. Conclude on what will ultimately happen. (1 point)
10. What will be the ultimate market price? (1 point)
11. Did lawmakers succeed in their mission? (2 points).
Exercise 3
This exercise represents 12 points out of 90. You should spend around 15 minutes and no
more than 20 minutes on it.
Consider the market for vaccines. Assume that the supply comes from many private firms who
only account for their private costs and the demand comes from citizens who only account for
their private benefit.
Famous economist Gregory Mankiw observed in the Wall Street Journal that the number of
people who were open to taking a vaccine for Covid was low and that this was troubling. He
argued: “No vaccine will be 100 percent effective, which means that getting vaccinated won’t
be sufficient to protect yourself from the virus. But if enough people get vaccinated, society
will develop herd immunity. With widespread, even if imperfect, vaccination, the virus won’t
be able to spread. No one knows for sure, but experts believe that 70 to 90 percent of the
population will need to be vaccinated.” He argues that the government should pay people to
get the vaccine.
1. If there is no payment, explain why the outcome is not a good one from society’s point
of view, using microeconomics. (2 points)
2. What would that payment do to demand for vaccines and why? (2 points)
3. How would the outcome be different with this payment? (2 points)
4. Why is the intervention of the state justified in this case? (2 points)
5. This would come at a cost. But what would be the benefits of this measure from a
microeconomic standpoint? (HINT: Take the example of any market, and explain how
this measure could improve the situation on this market). (4 points)
Exercise 4
This exercise represents 16 points out of 90. You should spend around 20 minutes and no
more than 25 minutes on it.
Remember the life cycle of the product.
Let’s apply this to a new, sophisticated smartphone.
1. How elastic will demand be in the introduction phase? (1 point)
2. Why? (1 point)
3. How elastic will demand be in the growth phase? (1 point)
4. Why? (1 point)
5. How elastic will demand be in the maturity phase? (1 point)
6. Why? (1 point)
7. How elastic will demand be in the decline phase? (1 point)
8. Why? (1 point)
Let’s apply this to a new brand of cereals.
1. How elastic will demand be in the introduction phase? (1 point)
2. Why? (1 point)
3. How elastic will demand be in the growth phase? (1 point)
4. Why? (1 point)
5. How elastic will demand be in the maturity phase? (1 point)
6. Why? (1 point)
7. How elastic will demand be in the decline phase? (1 point)
8. Why? (1 point)
