Managerial Economics

Problem Set 1

Directions:

A. Please review carefully the syllabus in order to complete and hand in this assignment appropriately.  I will not accept assignments that do not follow my instructions.  Graphs are essential when asked for – write them clearly and label everything!

1. Suppose customer satisfaction depends on the number of customer service representatives I hire.  After careful data collection, I estimate the particular relationship to be:

CS = 70 + 4R – .2R2.

Where CS = a customer satisfaction score on a scale of 0-100, and R is the number of customer service representatives I hire.  Suppose I am interested ONLY in maximizing my customer satisfaction score by choosing a number of customer service representatives.

1. (3 points)  Graph this function and define and describe (in economic terms!) the intercept and slope.
1. (3 points)  What level of R would maximize CS?  What is the maximum CS score achieved?  Show all your work and explain the economics behind the steps!
1.  (2 points). What could the firm do to increase the intercept from 70 to 80?  Explain fully.
1.  (2 points) Describe a real-world relationship between two variables that you believe is linear.  Justify your example.  Now instead provide  a real-world example of two variables that are not related linearly.  Again, explain your reasoning.

Post Problem:

B. The purpose of the post problem set discussion boards is to share personal, real-world examples of how the material in the module can be used.  Do not come up with contrived examples just to check the box.  Instead, spend some time thinking about your life and how some part of the material provided greater insight into issues you are grappling with in work.  For me, I have had numerous struggles over time with opportunity costs (not wanting them to exist primarily!) and sunk costs (which I can’t seem to always ignore).

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