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Liza is a manager of a leading soft drink manufacturing firm. Liza uses 10
months data and estimates the following demand equation:
Q = 10 '“ .5P + 1.5Y + .25PR
(2) (.17) (.75) (.50)
where P is the price of the soft drink manufactured by Liza's firm, Y refers
to household per capita income, and PRis the price of a rival soft drink
manufacturing firm. The standard errors of the coefficients are given in the
parentheses. Which of the explanatory variables have significant effects on
the demand for soft drink manufactured by Liza's firm? Explain.
(At 95% confidence level, the relevant t-statistic for 6 degrees of freedom
is 1.94)
Will a profit-maximizing firm seek to maximize output from a variable input? Explain.
What are incentive contracts? Explain why and when a buyer writes an incentive
contract.
Does free international trade increase economic efficiency? How do trade barriers and
tariffs affect efficiency? Explain.
What are the conditions suitable for a seller to use an auction? Explain.
The table gives the short-run production data for a manufacturing firm.
Compute average cost and marginal cost for the output levels shown in the
table.
Explain why monopolies are economically inefficient.
