Dr.

Palamuleni
Managerial Economics
EXAM 2 STUDY GUIDE

The Exam is scheduled for Thursday May 4th in our classroom.

A couple of you have requested a study guide to help you prepare for the test both the
take home portion and for the in-class portion. I really want you do well in this course as
such, the best way to prepare for the test is through practice, practice.
Look over all the assignments and class examples. Look over practice problems at the
back each chapter and please stop by my office if you are confused with some of the
practice problems.

Below are a couple of concepts that you should know for the test. This is not exhaustive
list, however based on our class lectures they should be familiar to you and you should
be able to use while formulation arguments.

You may add to your formula sheet any formulas you deem useful for the test. The test

Chapter 2, 3, 5 :

1. Determinants of Demand and Supply, Perfectly competitive market

Market equilibrium
o Understand effects of changes in price and other determinants of demand
(supply) on market equilibrium
o Welfare economics (Consumer surplus, producer surplus and total srprice)
o Understand the effect of government intervention on markets. (price
floors, price ceilings, taxes (per unit tax), tariffs, subsidies, quotas)

2.Chapter 5, understand the production process and the cost structure. Understand
o Production theory and cost theory.
o Understand production functions, average productivity, marginal products
o The role of diminishing marginal product
o Firms decisions to hire inputs in the short run (value marginal products and
factor price relationship)
o Firms decisions to hire inputs in the long run (equating rations of factor prices
and marginal rate of technical substitution )

2.cost function
o opportunity cost
o accounting costs (historical, explicit)
o cost minimization
o total cost, average cost, and marginal cost (short and long run)
o economies and diseconomies of scale
o economies of scope
o cost complementarity
 2

Chapter 8
Understand the market structure and how economists categorizes
business, based on market size, in terms or market shares.
Understand the decisions by firms in a perfect competition and
monopolistic competition
Monopoly
o assumptions of each market
o price taker, price maker
o sources of monopoly (input control, economies of scale, government)
o firm demand in each market
o profit maximization rule
o shut down condition (short run and long run)
o market supply function

Chapter 9 and 10
Oligopolies
o Know the definition and characterizations of the different oligopolies and how
they might make the decision of price and quantity

Summary
Choices
Q P Solving?

Moves Simultaneously cournot Bertrand Nash Equilibrium

Sequential Stackelberg Price leader Backward
induction

Know how to use game theory to solve for Nash-equilibrium.

Know dominant strategy, secure strategy, min-max or mixed strategies.

Chapter 14
Understand the role of government in our markets.
Government intervene to correct for, market failure (externalities, market power), to
provide public goods, and for redistribution purposes.
o Understand the effect of government intervention on markets. (price floors, price
ceilings, taxes (per unit tax), tariffs, subsidies, quotas)
o Understand the differences between social marginal costs vs private benefits and
social marginal benefits vs private benefits