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STEPS FOR USING EXCEL IN MICROECONOMIC

APPLICATIONS

This chapter provides step-by-step instructions for creating a simple worksheet and chart
using Microsoft Excel spreadsheet software.
CREATING AN EXCEL WORKSHEET
Open a new worksheet. The letters across the top of a worksheet correspond to columns.
The numbers along the left side of a worksheet correspond to rows. The box at the
intersection of a column and row is referred to as the cell location. Text or mathematical
expressions are entered into a cell by clicking on the cell and typing. Press “Enter” to
enter the data into the worksheet.
FILE IDENTIFICATION AND INPUT AREA
In constructing a worksheet, the first step is to provide file identification and the input
information that will be needed for the desired output. The objective of this worksheet
will be to illustrate supply and demand. Click on the appropriate cell and enter the initial
information shown in Exhibit. Use Auto fill to insert the values for quantity. Brief
reviews of some of the Excel features are given if you should need them.
In order to prepare a chart of the supply and demand curves, the relationships must be
written in terms of price being a function of quantity. P (Qd) is the market demand
relationship expressed as price being a function of quantity. P (Qs) is the market supply
relationship expressed as price being a function of quantity.
AUTOFILL
This command enables the user to fill a specified range with a sequence of
1. Type in the first two values of the series (i.e., 0 and 10) in the first two cells below the
heading.
2. Highlight the cells in which you just placed your values. Put the cursor on the small
box in the bottom right corner of the cell (the fill handle); the cursor will turn to a “+“.
3. Click and drag your mouse over the cells that you want Auto fill to fill in. Release the
mouse.
A basic and simple example is given below:
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Exhibit 1.1
FILE IDENTIFICATION AREA
Filename:DemandSupply.xls:
Designer:
Input Required:

a:Quantity:Q
b:demand relationship expressed as price being a function of quantity:P(Qd)
c:supply relationship expressed as price being a function of quantity: P(Qs)

Output: Supply and Demand Schedules

a: quantity demanded at market prices(Qd)
b: quantity demanded at market prices (Qs)
File Created:
File Modified:
File Last Used:

INPUT AREA:
Q(Qd or Qs) P(Qd) P(Qs)
0
10
20
30
40
50
60
70
80
90
100

EDITING A CELL
A cell can be put into edit mode by double clicking on the cell. Excel will then allow you
to move around within the cell and change the contents. A cell can also be edited within
the formula bar at the top of the worksheet. When a cell is clicked on, its contents
automatically appear in the formula bar. The cell’s contents may be centered, underlined,
the font changed, or anything else that can be done to regular text. When finished typing,
press “Enter” to insert the contents into the worksheet. To delete the entire contents of a
cell, click on the cell and press the Delete or Backspace key.
INSERTING FORMULAS
Formulas are entered just as they would be processed algebraically; using cell addresses
to represent values in the equation. When an equal sign is the very first symbol entered,
Excel knows this cell contains a mathematical expression. If there is a space before the
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equal sign, Excel will read it as text only. Do not put any spaces within the formula. Type
the formulas into your worksheet; press “Enter” after each cell entry.
COLUMN EXPANSION
When the spreadsheet program is first loaded, the column width will be eight characters.
If your cell data exceeds the cell width, the data will simply run into the adjacent empty
cell. However, if the adjacent cell is not empty, the overflow data will be truncated at the
cell border. To avoid this, column width can be changed using the following steps. Note:
It is best to be out of the edit mode when changing cell width; click on a blank cell to exit
the edit mode.
1. Position the cursor at the top of the screen on the mid-point between the lettered
column headings (i.e., between A and B). The cursor should change into a “+.”
2. Click-and-drag using the left mouse key; hold it while “dragging” the column to a
different width.
OUTPUT AREA
Using the demand relationship: =40-2*Qd we will compute the data for the quantity
demanded at each of the price data points (P). Likewise, using the supply relationship:
=5+.5*Qs, we will compute the data for the quantity supplied.
Format the output area by typing in the formulas. Note that the formulas now contain the
appropriate cell addresses. The values for quantity (Q) can be taken directly from the
input area. Copy the formulas into the remaining cells for Q, P (Qd), and P (Qs) using the
Auto fill procedure as discussed below.
COPYING FORMULAS
Cell addresses will automatically adjust when a formula is copied from one cell to
another. If a formula is copied down the length of a column using the Auto fill procedure,
the address will change corresponding to the row in which the formula is placed. This is
referred to as relative addressing. If a formula is copied across a row, the address will
change corresponding to the changing columns. Copy the formula into the other cells in
your worksheet by performing the following steps:
1. Click on the cell that contains the formula. Put the cursor on the small box in the
bottom right corner of the cell (the fill handle); the cursor will turn to a “+“.
2. Drag the cell over the range of cells you want to fill.
3. After insertion and copying of the formulas, the output area should contain the correct
values for each item.
MANIPULATING DATA
You all can modify the input area and instantly see how the change affects the output.
The demand and supply formulas in the output area can also be changed. For example,
change the input area from 100 to 300. You will note that the corresponding values of
P(Qd) and P(Qs) in the output are automatically recalculated.
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NUMERIC FORMATTING
If you wish to include dollar signs and commas, highlight the cells containing currency
values. Once the cells are selected, click on the icon of a dollar sign ($). Alternatively,
you can click on “Format” in the menu bar and then select Cells - Number-Currency. To
insert decimal places, click on Format - Cells - Number - Decimal places.
CREATING A LINE CHART
Having constructed a worksheet of the demand and supply data, we can now create a line
chart from it. In creating a chart, you must first paint in the range on the worksheet
containing the data that is to be charted, in this case that would be the columns containing
P(Qd) and P(Qs) values and titles (cells C30 through D41). Next, click on the Chart
Wizard icon (a colorful bar chart). There are four steps in using The Chart Wizard in
Excel.
STEP ONE
In the first step, you must select a type of chart. Select “Line chart.” Then you may
choose any of the variations of line charts offered. When completed, click on “Next.”
STEP TWO
In step two, Chart Wizard is confirming the data range, which you previously
highlighted, and the fact that the data is in columns. Also, you can designate the values
for the x-axis in this step. Click on the “Series” tab and then click on the box showing
“Category (X) axis labels.” On your worksheet, highlight the range showing quantity
values, and not titles. Press “Enter.” Chart Wizard will immediately enter the quantity
amounts for the x-axis labels. Click on “Next.”
STEP THREE
In step three, chart options may be selected, such as titles, gridlines, legend, and data
labels. Type “Demand and Supply” into the title box. Type “Quantity” into the x axis box
and “Prices” into the y-axis box.
Chart Wizard automatically inserts gridlines corresponding to the y-axis. To include
gridlines corresponding to the x-axis, click on the gridlines tab and check the box for x-
axis gridlines. These are the only selections necessary for this example. Chart Wizard
will automatically show a chart legend unless you turn the option off. If the column
headings had not been highlighted initially, then Chart Wizard would use the generic
label of “Series 1” for the legend.
Values or symbols can be placed directly on the graph lines by clicking on the Data
Labels tab.
STEP FOUR
In step four, you will indicate whether to save the chart as a new sheet or within your
current worksheet. Select the latter. Click the “Finish” button and your chart should
appear on your worksheet as Exhibit 1.2.
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Exhibit 1.2

Demand and Supply

$60
$50
$40
P(Qd)
Prices

$30 P(Qs)
$20
$10
$0
0

10

20

40

60

70

90
30

50

80

100
Quantity

To print a chart, you would have to highlight the chart and select the “Print” or
the “Print-preview” button. To DELETE a chart, you would simply have to highlight the
chart and select the DELETE button.

KEY PROCEDURES IN USING EXCEL IN MICROECONOMIC

APPLICATIONS.
1) SUPPLY AND DEMAND:
In preparing the worksheet when solving a supply and demand problem, you would have
to:
• Input values of P (Price) and using formulas, input values of Qd and Qs in
different column cells.
• Input Quantity (Q) in a cell column and using formulas, as given in the problem,
substitute for Q in the formula for different increments of q.
• The resulting values would be P(Qd) and P(Qs) would be Price expressed as a
relationship of demand and supply respectively.
• In drawing the Line Chart, we would make use of P(Qd) and P(Qs) as the output
range and we would use under the “SERIES” tab, the value of our x-axis which
would be the Highlighting of the range of Q values without the title.
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I would suggest a referral to the earlier parts of this guide sheet in order to modify your
charts and make some adjustments.

2) PRICE ELASTICITY COEFFICIENT OF DEMAND:

This is the same as the concept of demand and supply. In this case, we would have to
Set-up column cells for PE (D) which stands for the price Elasticity of Demand, VID
which stands for the vertical axis intercept of the demand curve and P is the price which
corresponds to a specific quantity demanded.
This table should be able to guide you in preparing worksheets for solving Price
Elasticity problems:
Exhibit 1.3:
Qd P(Qd) Q PE(D) TR MR
=155-P =155-Q 0 =P/(P-VID) =P*Q =((Pi+1 *Q i+1 ))/
or (Q i+1- Q 1 )
=(155-Q)*Q

10
20

The same approach would apply to the Income Elasticity of Demand and this would only
differ in the Income Elasticity of Demand IE(D) formula which is = %chQd / %chY
where Y is Income or you could the formula =((Q-Q’)/Q) / %chY

3) INDIFFERENCE CURVES:
In Using Indifference curves, we would have to be able to input Data showing the
quantity combinations for two goods (good A and good B) providing a consumer
identical levels of satisfaction (Utility).
The table should be a good guide in solving problems of this nature especially in drawing
up the Worksheet for the various input combinations.
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Exhibit 1.4:
Q(B) Q(A)@I1 Q(A)@I2
0
4 46 60
8 22 30
12 9 16
16 4 7.5
20 3.4 5
24 2.6 2.2
28 2.1 2.0
36 2.7 3.3
42 1.6 1.2

Where:
Q (B) represents the quantity of good B
Q (A) represents the quantity of good A
I1 indicates a level of consumer satisfaction (or utility)
I2 represents a level of satisfaction greater than I1
Q (A@ I1 represents a quantity of good A in combination with the corresponding quantity
of good B (Q(B)) resulting in I1 level of satisfaction.
Q (A@ I2 represents a quantity of good A in combination with the corresponding
quantity of good B (Q(B)) resulting in I2 level of satisfaction.

4) PRODUCTION FUNCTION:
In drawing up the Worksheet for any given Production Function problem in Excel, we
would have to understand the concept of fixed factor input and variable factor input
which will be discussed in class.
We would have to have an idea of the column cells which would be quantity of
good A, which could be denoted Q (A),quantity of good B denoted Q (B), total physical
product of output of good Y for combinations of good A and B, denoted TPP, increased
quantity of good A;Q’(A) and the total physical product showing output of good Y for
combinations Q’(A) and Q’(B) and it could be denoted TPP’.
A detailed worksheet should look like this:
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Exhibit 1.5
Q(A) Q(B) TPP Q’(A) TPP’
40 0 0 50 0
40 5 5 50 6.5
40 15 11 50 21.5
40 20 19 50 54
40 25 24 50 70
40 35 49 50 83

Note: Your production function curve should be more of an S shaped curve.

5) UNIT COST AND REVENUE ANALYSIS

In working on spreadsheets that deal with unit cost analysis, we should all be familiar
with the concept of unit costing and the various types of costs.
In drawing a line chart, we would have to prepare first the worksheet and follow the steps
in the first few pages of this guide sheet.
Below is a table with formulas of how the worksheet should be set up in solving
problems of this nature using the Excel worksheet.
Exhibit 1.6
Q(A) P(A) Q(B) P(B) TPP TFC TVC TC
30 $50 0 $100 0 =P(A)*Q(A) =P(B)*Q(B =TFC+TVC
)
5 10
11 20
23 30
28 40
56 50
45 60

The above table is a guide to help you in preparing your worksheet on questions which
should be on areas covering Unit Cost and Revenue Analysis.
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In the Table above:
Q(A) is quantity of the fixed factor A which will be given.
Q(B) is quantity of the variable factor B
P(A) is price of factor A, the fixed input
P(B) is price of factor B, the variable input
TPP stands for the total physical product and is the output resulting from various
combinations of the fixed factor A and variable quantities of factor B.
TFC is total Fixed Cost
TVC is total variable Cost
TC is total Cost.
It must be noted here that we do have the revenue concepts which must be understood in
order to make the Concept of Revenue Analysis a pass to you all.
Exhibit 1.7
Q(A Q(B) TPP TFC TVC TC AFC AVC ATC MC
)
30 0 0 $150 $0 $150 =TFC/TPP =TVC/TPP =TC/TPP
0 0
10 600
20 1500

MC=((TCi -TC i-1 ))/(TPP i- TPP i-1 ) where MC represents Marginal Cost.

REVENUE ANALYSIS
In explaining the revenue analysis concept using Microsoft Excel Spreadsheet, we would
have to look at the table below in guiding us through the various problems of revenue
analysis.
Exhibit 1.8
TPP AFC AVC ATC MC P(Y) TR MR
0 $60 =P(Y)*TPP
10 $150 $60 $210 $60
20 $75 55 130 50
30 $50 50 82.5 40
MR= (TRi -TR i-1 ))/(TPP i- TPP i-1 ) where MR represents Marginal Revenue.
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We must all note here that the Profit concept could be defined as TR-TC and this could
be used in order to get the Maximum profit of any firm or organization. We must also
bear in mind that TPP is the profit at each level of output.
It must be noted here that P(Y) could be defined as the possible market prices for
good Y as the case may be.

6) SHORT RUN SUPPLY FOR THE PERFECT COMPETITOR

The perfect competitive firm or organization is a price taker. The firm must accept the
market price; any increase or reduction in its output will have no effect on the price of the
product. If it raises its price, it sells nothing. If it lowers its price, it can sell no more than
if it charges the market price. We should all know that this results in a marginal revenue
and average revenue (demand curve) for the individual firm that is horizontal and equal
to the market price.
Thus, the output point where MR=MC is also a point where output (supply) is
determined by the existing market price. Using marginal analysis, we know that any firm
seeks to produce an output level where marginal revenue is equal to marginal costs.
The table below gives you all an overview of how problems of this nature can be solved:
Exhibit 1.9
TPP AVC ATC MC P(Y) MR(or AR)
0 $30 =P(Y)
10 $60 $210 $60 $40
20 55 130 50 $50

Where:
TPP represents total physical product showing output of good Y for combinations of
good A and B
AVC is the average variable Cost for each level of output
ATC represents the average cost for each level of output
MC is the marginal cost for each level of output
MR represents the marginal revenue for each level of output for each of the specified
market prices: MR1, MR2, MR3 and MR4.
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7) MONOPOLIST PROFIT
In preparing the worksheet of this sort of problem, we would have to set up column cells
for Q which would be in increments of whatever number, we would also have to set up
columns for AVC,ATC, MC, TR, AR,MR and Profit.
Remember, TR could be formulated as AR*Q or PQ and this should be a guide in
helping you with problems of this nature.
For reference purposes, a detailed worksheet should look like the sample below:
Q AVC ATC MC TR AR MR Profit
0 =P*Q or =(188- =(AR-
0.8*Q) ATC)*Q
or
=TR-TC
10 $60.00 $210.00 $60 =AR*Q
20 $55.00 $130.00 $50
30 $50.00 $100.00 $40
40 $45.00 $82.50 $30

Where MR is represented with the formula (TRi -TR i-1 ))/(Qi- Qi-1 )