## BMME5103 Managerial Economics Assignment Solutions

Assignment Detail:-

• Number of Words: 5500

### PART I

QUESTION 1 (CLO 1)

In any market systems, the role played by economic profits is crucial in assisting resource owner to make optimal decisions. Not only the existence of profits, but the level of these profits will determine the type and quantity of goods and services that will be produced and sold, which in turn influence the resulting derived demand for resources. There are several theories of profit which can explain how this happens. You are required to select any ONE successful profit-making organisation and identify reasons for the existence of profits in that organisation.

QUESTION 2 (CLO 1)

Fiza Coffee SdnBhd (FCSB) has hired you as an economic consultant to assess the potential of profitably entering the Malaysian market for gourmet coffee. FCSB would like you to make your recommendations on what are the most important factors in order to successfully penetrate the market. The firm also instructs you that in addition to the production of the coffee itself, it is also interested in opening several distribution outlets or sales points. They would like your recommendation on the factors that would be most beneficial to determine the correct location and size for the outlet.You are required to explain on how you would proceed with this job.

QUESTION 3 (CLO 2)

Discuss the effects for the on the value of the firm.

1. A new advertising campaign increases the sales of the firm substantially.
2. A new competitor enters the market.
3. The production department achieves a technological breakthrough that reduces production costs.
4. The firm is required to install pollution control equipment.
5. The workforce votes to unionise.

QUESTION 1 (CLO3)

The Lumins Lamp Company, a producer of old-style oil lamps, estimated the following demand function for its product:

Q = 120,000 – 10,000P

where Q is the quantity demanded per year and P is the price per lamp.

The firm’s fixed costs are \$12,000 and variable costs are \$1.50 per lamp.

1. Write an equation for the total revenue (TR) function in terms of Q.
2. Specify the marginal revenue function.
3. Write an equation for the total cost (TC) function in terms of Q.
4. Specify the marginal cost function.
5. Write an equation for total profits (π) in terms of Q. At what level of output (Q) are total profits maximised? What price will be charged? What are total profits at this output level?
6. Check your answers in Part (e) by equating the marginal revenue and marginal cost functions, determined in Parts (b) and (d), and solving for Q.
7. What model of market pricing behaviour has been assumed in this problem?

QUESTION 2 (CLO2)

You have been presented with the following data and asked to fit statisti­cal demand functions:

 REGION SALES (Y) (‘000 gallons) ADVERTISING EXPENSES (A) (\$’000) SELLING PRICE (P) (\$/gallon) DISPOSABLE INCOME (M) (\$’000) 1 160 150 15.00 19.0 2 220 160 13.50 17.5 3 140 50 16.50 14.0 4 190 190 14.50 21.0 5 130 90 17.00 15.5 6 160 60 16.00 14.5 7 200 140 13.00 21.5 8 150 110 18.00 18.0 9 210 200 12.00 18.5 10 190 100 15.50 20.0

Use any multiple regression packages to estimate a linear relationship between the dependent variable and the independent variables.

(a) Linear Relationship

1. Identify the dependent and independent variables.
2. Estimate a linear relationship between the dependent variable and all the independent variables.
3. What are the tests that you would use to determine the ‘goodness-of-fit’ of the estimated demand function? Conduct the tests and explain the results.
4. Discuss the economic implications of the various coefficients.

(b) Non-linear relationship.

1. Estimate a logarithmic form of the demand function.
3. Compare with the linear form above. Elaborate.

QUESTION 3 (CLO3)

The amount of fish caught per week on a trawler is a function of the crew size assigned to operate the boat. Based on past data, the following production schedule was developed:

 CREW SIZE (NUMBER OF WORKERS) AMOUNT OF FISH CAUGHT PER WEEK (TONNES) 2 3 3 6 4 11 5 19 6 24 7 28 8 31 9 33 10 34 11 34 12 33

(a) Determine the ranges of workers based on the following situations:

• Increasing returns
• Constant returns
• Decreasing returns
• Negative returns

(b) How large a crew should be used if the trawler owner is interested in maximising the average amount of fish caught per worker? Explain.

### ONLINE CLASS PARTICIPATION

Discuss the following topic(s) in the forum and submit proof of your participation in the online discussions:

1. The ability to make good decisions is the key to successful managerial performance. All decision making share several common elements. Using your organisation as an example, discuss the common elements of a decision-making process using the managerial economics theories and decision science analytical tools to solve managerial decision problems.
2. Discuss how the marginal analysis can be applied in aiding decision making in the short run and long run investments.

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