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ME BMFM32116_Group 13_ME Exam Format QUES STUD (3).pptx

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ME BMFM32116_Group 13_ME Exam Format QUES STUD (3).pptx

  1. 1. Group 13 Course Code: BMFM 32116 Subject Title: MANAGERIAL ECONOMICS Lecturer: MS BARATHY DORAISAMY NO. STUDENT’S NAME STUDENT’S ID NO. 1 CHIN WEN JIE B19080632 2 PANG JING WEN B19080631 3 SOO KAI HONG B19080598 4 HO RUI XIANG B19080622 5 LIM JIA SHENG B19080652 6 TANG SOO HEN B19080575 7 ROLLAND TEO KAI B19080592
  2. 2. Question 1 Given that annual demand and supply for the E&E Electronics Company is given by: QD = 7,000 + 0.6I + 0.2A – 120P and QS = - 5,000 + 110P where Q is the quantity per year, P is price of the products, I is income per household, and A is advertising expenditure: a. Determine the function of demand curve if A = RM8000 and I = RM18,000, what is the demand curve. [1 Mark] When A= RM8,000 and I= RM18,000 QD= 7,000+ 0.6(RM18,000) + 0.2(RM8000)-120P =7000+10800+1600-120P =19400-120P
  3. 3. b. Determine the equilibrium price and quantity. [2 Marks] QD=19400-120P QS = - 5,000 + 110P When price is equilibrium, QD=QS 19400-120P=-5000+110P 230P=24400 P=24400/230 =RM106.09 Thus, when P=RM106.09 QD= 19400-120(106.09) = 6669.57⋍6670 QS=-5000+110(106.09) =6669.9⋍6670
  4. 4. c. Solve the equilibrium price and quantity if there is an increase in consumer income RM20,000 [Required to show all computations involved] [3 Marks] Increase in demand Supply constant QD=19400-120P +12000 =31400-120P When price is equilibrium, QD=QS 31400-120P=-5000+110P 230P=36400 P=36400/230 =RM158.26 Thus, when P=RM106.09 QD= 31400-120(158.26) = 12408.8⋍12409
  5. 5. d. Based on your solution for question (c), provide the type of goods which might be involved with relevant reasons. [2 Marks] Soft drinks  Not a necessity, so a big increase in price would cause people to stop buying them or look for other brands.  A big decrease in price or increase in quantity demanded would attract more buyers.
  6. 6. e. Evaluate the type of price elasticity of demand for this company. [2 Marks] Price Elasticity of Demand= [(12409-6670)/12409]x100%➗[(158.26-106.09)/158.26]x100% =46.24➗32.96 =1.40 Since Price elasticity of demand is greater than 1 Elastic
  7. 7. Question 2 [Total 10 Marks] a.If a firm estimates its short-run production function to be Suppose the firm employs 16 units of capital. Determine the equation of Total Product (TP), Average Product (AP) and Marginal Product (MP) [3 Marks] TOTAL PRODUCT(TP) = Q = -0.008K3L3+11K2L2 = -0.008(16)3L3+11(16)2L2 = -32.768L3+2816L2 2 2 3 3 11 0008 . 0 L K L K Q    Average Product(AP) = 𝑸 𝑳 = 𝑨𝑳𝟐 + 𝑩𝑳 =-32.768L2+2816L ANSWER : Marginal Product(MP) = 𝜟𝑸 𝜟𝑳 = 𝟑𝑨𝑳𝟐 + 𝟐𝑩𝑳 = -98.304L2 + 5632L
  8. 8. b.A perfectly competitive firm has total revenue and total cost curves given by: TC = 3,500 + 4Q + 0.3 Q2 i.Compute the average variable cost if the volume of sales is 190 units for the last cycle. [3 Marks] ANSWER : AVC = 𝑽𝑪 𝑸 = 𝟒𝑸+𝟎.𝟑𝑸𝟐 𝑸 = 4 + 0.3Q = 4 + 0.3(190) = RM 61
  9. 9. ii. Determine the level of price that the firm should set for these few months if the sales volume is only 100 units due to lockdown. [4 Marks] Answer : When Q = 100 units TC = 3,500 + 4(100) + 0.3 (100)2 = 3,500 + 400 + 3,000 = 6,900 AC = TC/Q = 6,900 / 100 = RM69
  10. 10. Question 3 [Total 10 Marks] Below is an average variable cost(AVC) and Average Revenue (AR) function estimated to be for a small firm AVC=500-0.03Q+0.001Q2 AR= 590 -0.03Q where AVC is measured in ringgit per unit. i. Based on the function given, extract the estimated marginal cost function. [2 Marks] ANS: TC = AVC * Q TC = [500-0.03Q + 0.001Q2]*Q = 500Q – 0.03Q2 + 0.001Q3 MC = 500 – 0.06Q + 0.003Q2
  11. 11. Determine the profit-maximizing level of output and price. [4 Marks] Ans Profit Maximizing level of output occurs when MR = MC TR = AR * Q TR = [590 - 0.03Q]*Q TR = 590Q – 0.03 Q2 MR = 590 – 0.06Q At profit maximizing level of output MR = MC 590 – 0.06Q = 500 – 0.06Q + 0.003Q2 590 – 500 = 0.06Q – 0.06Q + 0.003Q2 90 = 0.003Q2 Q= 173.21 TR = P * Q Q2= 90 / 0.003 = 30000 TR = 590 (173.21) – 0.03( 173..21)2 101203.85 = P * Q Q= 173.21 = 102193.9 –900.05 101203.85 / 173.21 = P = 101203.85 584.28= P
  12. 12. Determine the firm's expected profit or loss, if total fixed cost is expected to be RM5 million. [4 Marks] TR = 102193.9 –900.05 = 101203.85 Q= 173.21 Total Cost= 500Q – 0.03Q2 + 0.001Q3 = 500(173.21) - 0.03 (173.21)2 + 0.001(173.21)3 = 86605 – 900.05 + 5196.59 = 90901.54 + 5,000,000 = 5,090,901.54 101,203.85 – 5,090,901.54 = -4,989,697.69 #
  13. 13. Question 4 [Total 10 Marks] A monopolist’s Demand function is P = 1546 - 4Q, and its Total Cost function is TC = 21,000 + 22Q -3Q2 + ⅓Q3, where Q is output produced and sold. Based on the demand and total cost function above, compute the level of output and price that maximized profit and hence determine the level of profit. [10 Marks] TR = P(Q) =1546 – 4Q(Q) =1546Q – 4Q2 MR = d(TR)/dq = d (1546Q – 4Q2) / d(Q) = 1546Q1-1 – 2(4)Q2-1 = 1546 – 8Q MC = d(TR)/dq = d(21,000 + 22Q – 3Q2 + ⅓Q3) / d(Q) = 22Q1-1 – 2(3)Q2-1 +3 (⅓)Q3-1 = 22 – 6Q + Q2
  14. 14. MR = MC 1546 – 8Q = 22 – 6Q + Q2 Q2 = – 8Q + 6Q – 22 + 1546 Q2 = –2Q + 1524 Q2 + 2Q – 1524 = 0 𝒙 = −𝟐 ± 𝟐𝟐 − 𝟒(𝟏)(−𝟏𝟓𝟐𝟒) 𝟐(𝟏) 𝒙 = −𝟐 ± 𝟒 + 𝟔𝟎𝟗𝟔 𝟐 𝒙 = −𝟐 ± 𝟔𝟏𝟎𝟎 𝟐
  15. 15. X= 38.05 X= -40.0512 Q = 38 units P = 1546 – 4(38) =1546 – 152 =RM 1394
  16. 16. Q 5a. The practice of price discrimination in an economy is always relate to unethical in the field of business. Evaluate the statement above with relevant examples. • What is price discrimination The practice of selling the same product while charging different prices to different customers. Example: Airline tickets will be sold much expensive to travellers during the holidays where people are willling to travel during holidays while during normal weekdays prices are set to lower.
  17. 17. Why it’s Unethical It’s consider unfair Companies can create unfair price where they sell their products at a higher price to a certain types of group of people base on their race, gender or income level. Lower product choices Monopoly companies can take advantage of price discrimination to capture a greater market share and establish a high barrier to entry. In addition, lower-income consumers may not be able to afford the high prices charged by the companies.
  18. 18. Why it’s Unethical Reduces consumer surplus Price discrimination transfers the surplus from consumer to producer, thus reducing the benefit consumers can receive. Adminstration costs Business have to pay for adminstration cost when they carry out price discrimination.
  19. 19. b.Explain the usefulness of production function in the analysis of the firm’s production. Helps in making short-term and long term decisions in such as finding the optimum level of output and deciding the production level. Helps in calculating the least cost combination of various factor inputs at a given level of output. Gives logical reasons for making decisions. For example, if price of one input falls, one can easily shift to other inputs.
  20. 20.  The necessity to comply with rules and regulations is linked to compliance risk. These also allude to the necessity to act in accordance with creditors' and consumers' wishes, such as through strong corporate governance.Financial risks are those that affect your company's financial structure, investments, and financial processes. A examination of your everyday financial activities, particularly cash flows, is required to identify financial risks. If you are overly reliant on a single customer and cannot afford them, your company's viability may be jeopardised. QUESTION 6 Analyse the economic conditions which are relevant to managerial decision making by considering the type of risk will be facing by a firm.  The possibility and effects of an event are characterised as risk. Risk management is a field in which methods, tactics, and instruments are used to manage these risks. Risk management focuses on identifying what could go wrong, determining which risks must be addressed, and putting risk management strategies in place. Companies that define threats will be better prepared and will be able to deal with them more efficiently.  Businesses encounter numerous hazards, and risk management should be at the forefront of every company's strategic planning. Risk management assists you in identifying and resolving your company's difficulties, increasing your chances of accomplishing your business objectives. Risk management is significantly more crucial when the organisation wants to attempt something new, such as introduce a new product or enter new markets. In situations like these, competitors that follow you to these markets or technical advancements that render you obsolete are two threats.
  21. 21.  Risk management is not a stand-alone activity. Continuous monitoring and assessment are critical to the effectiveness of your Risk Management strategy. This monitoring ensures that risk is correctly identified and assessed, as well as that controls are properly implemented. It's also a chance to learn from your mistakes and improve your risk management strategy.  Risk assessment allows you to assess the importance of hazards to your organisation and determine whether to accept them or take steps to prevent or mitigate them. Once the risks have been discovered, they should be categorised in order to be assessed. It is possible to consider the ramifications and the likelihood of increased danger. The measurement of high, medium, or low effect and likelihood is generally accepted by most organisations. This can then be compared to your business plan, taking into account legal requirements, expenditures, and investor concerns, to determine whether risks may have an impact on your objectives.
  22. 22.  Inflation rate Although price/cost forecasting implicitly considers inflation, inflation can be quite volatile from year to year for some countries. Inflation rates mean that the parent and subsidiary countries may have different inflation rates, so the expected inflation rate must be included in the calculation.  Exchange rate Since it is difficult to accurately forecast exchange rates, different scenarios can be considered together with their probability of occurrence. Exchange rates is another complication, the exchange rate between the parent and subsidiary country will change during the project period may be based on the differential inflation between the two countries. QUESTION 7 Describe the additional complications facing an MNC compared with a domestic corporation when it is evaluating a capital budgeting project.
  23. 23.  Tax differences Tax differences, because the tax rates differ between the two location and thus has to be taken into account when a capital project is under consideration.  Financing arrangement Financing costs are usually captured by the discount rate. However, when foreign projects are partially financed by foreign subsidiaries, a more accurate approach is to separate the parent subsidiary investment and explicitly consider foreign loan payments as cash outflows.  Blocked funds Some countries require that the earnings generated by the subsidiary be reinvested locally for at least a certain period of time before they can be remitted to the parent. QUESTION 7 Describe the additional complications facing an MNC compared with a domestic corporation when it is evaluating a capital budgeting project.

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