ASSIGNMENT

_______________________________________________________________________________
BMME5103
MANAGERIAL ECONOMICS
JANUARY 2020

SPECIFIC INSTRUCTION

1. Answer in English or Bahasa Malaysia.

2. The number of words: 3000 – 5000 words excluding references.

3. Submit your assignment ONCE only in SINGLE files.

4. Submit your assignment ONLINE.

5. Submission date: 16 MARCH 2020.

6. This assignment accounts for 60% of the total marks for the course.

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 ASSIGNMENT QUESTION

PART 1: FUNDAMENTAL CONCEPTS

OBJECTIVE:

The objective of this assignment is to evaluate the students’ knowledge of the fundamental economics
concepts.

REQUIREMENT:
QUESTION 1 (CLO1).

a. Discuss the role of managerial economics in problem-solving. Provide your own example.
(2 marks)

b. How is the concept of a normal return on investment related to the distinction between business
and economic profit?
(2 marks)

QUESTION 2 (CLO2).

Identify the determinants of demand and supply. For each of the determinants of demand, identify an
example illustrating the effect on the demand for hybrid gasoline-electric vehicles such as the Toyota Prius.
Then do the same for each of the determinants of supply. In each instance, would equilibrium market price
increase or decrease? Consider substitutes such as plug-in hybrids, the Nissan Leaf and Honda Insight, and
complements such as gasoline and lithium-ion batteries.
(6 marks)
[TOTAL: 10 MARKS]
PART 2: CONSUMER BEHAVIOUR

OBJECTIVE:

The objective of this assignment is to enhance the students’ ability to analyse demand, estimate demand
functions and conduct forecasting.

REQUIREMENT:
QUESTION 1 (CLO2).

a. What is the advantage of using the price elasticity rather than the slope of the demand curve or its
inverse to measure the responsiveness in the quantity demanded of a commodity to a change in its
price?
(3 marks)

b. Why and how is the formula for arc price elasticity of demand different from the formula for point
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 price elasticity of demand?
(2 marks)

QUESTION 2 (CLO2).

Eastern Electric produces a 25-inch thin-walled television. The company wants to get a better grasp on the
sensitivity of the quantity demanded of its product to the various factors that affect it. You have been
hired as a consultant to estimate the following demand function:

QE = β0 + βlPE + β2PG + β3I

where

QE = the average monthly quantity demanded of Eastern Electric’s televisions during a given calendar year.
PE = the price of Eastern Electric’s television
PG = the price of a television set made by a competing company. Generally Excellent
I = average annual household income.

Table 1: Data on Television Sales

Price of Price of Average

Quantity
Eastern Generally Annual
of
Electric Excellent Household
Televisions
Televisions Televisions Income
250 900 1400 30000
400 800 1500 30000
330 800 1200 30000
360 800 1200 32000
445 700 1200 32000
380 700 1000 31000
440 675 1000 32000
400 675 900 32000
450 630 900 32000
500 630 950 38000
440 630 800 38000
500 595 800 38000
470 595 750 38000
520 595 750 42000
480 595 700 42000
440 625 700 42000
410 625 700 39000
460 625 750 39000

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a. Find the estimated values for β0, βl, β2 and β3.
(5 marks)
b. Which of the estimated values that you found in part (a) are significantly different from zero at the 5
percent level of significance? Explain.
(3 marks)
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c. What is the value of R ? Explain.
(2 marks)

QUESTION 3 (CLO2).

a. Answer the following question:

i. What is meant by forecasting?
ii. Why is forecasting important in the management of business firms and other enterprises?
iii. What are the different types of forecasting?
iv. How can the firm determine the most suitable forecasting method to use?
(4 marks)

b. The following table shows gasoline sales in the United States (in millions of barrels) from the first
quarter
of 1986 to the last quarter of 1989.

GASOLINE SALES IN THE UNITED STATES: 1986:1 TO 1989:4

(IN MILLIONS OF BARRELS)
Year Sales Year Sales Year Sales Year Sales
1986.1 600.4 1987.1 610.8 1988.1 640.8 1989.1 639.3
1986.2 652.8 1987.2 679.5 1988.2 686.5 1989.2 681.0
1986.3 671.1 1987.3 681.2 1988.3 691.1 1989.3 685.5
1986.4 654.8 1987.4 667.6 1988.4 676.5 1989.4 677.7
Source: Survey of Current Business (Washington, D.C.: Government Printing Office), various issues.

i. Estimate the linear trend in the data, and use it to forecast gasoline sales in the United States in
each quarter of 1990.
ii. Estimate the log-linear trend in the data, and use it to forecast gasoline sales in the United
States in each quarter of 1990.
iii. Which form of the trend fits the historical data better? Why would we expect both forecasts to
be rather poor?
(6 marks)
[TOTAL: 25 MARKS]

PART 3: PRODUCTION AND COST THEORY

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OBJECTIVE:

The objective of this assignment is to enhance the students’ ability to analyse problems related to
production and cost of a production firm.

REQUIREMENT:
QUESTION 1 (CLO3).

a. If the total product curve first increases at an increasing rate (i.e., it faces up) and then
increases at a decreasing rate (i.e., it faces down),

i. What is the shape of the corresponding average product and marginal product curves?
ii. What is the relationship between average product and marginal product?
iii. What is the relationship between the above total product curve and the total cost curve?
(3 marks)
b. Given the following total revenue and total cost functions of a firm:

TR = 22Q - 0.5Q2
TC = 1/3 Q3 - 8.5Q2 + 50Q + 90

Determine:
i. The level of output at which the firm maximises its total profit.
(2 marks)
ii. The maximum profit that the firm could earn.
(2 marks)

Question 2 (CLO3).
A woman managing a photocopying establishment for $25,000 per year decides to open her own
duplicating shop. Her revenue during the first year of operation is $120,000, and her expenses are as
follows:
Employees salaries $45,000
Supplies $15,000
Rent $10,000
Utilities $ 1,000
Interest on bank loan $10,000
Calculate
i.the explicit and implicit costs
ii.the business profits and economic profits
iii.the normal return on investment for this business.
(3 marks)
[TOTAL: 10 MARKS]

PART 4
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OBJECTIVE:

The objective of this assignment is to enhance the students’ ability to evaluate and synthesise problems
for firms in a competitive market place.

REQUIREMENT:
QUESTION 1 (CLO4).

Answer the following questions:

a. How does a firm determine the profit-maximising level of output?

(1 mark)

b. How would you determine if a sales manager has a marketing program that maximises sales?

(2 mark)
QUESTION 2 (CLO4).

Read the case and answer the following questions:

Apple Primetime: with iPhone sales slowing, Apple bets on video, gaming, news and a credit card

The company takes on tech giants, Hollywood and banks

IT WAS NOTHING like Steve Jobs introducing the iPhone. But the two-hour show on March 25th put on by
Tim Cook, Jobs’s less histrionic successor as boss of Apple, may nevertheless be remembered as a
milestone for the company—and the entertainment industry. Mr Cook did not announce the latest sleek
gadget. Instead, he unveiled a suite of products and services, including video streaming, news, games and
even a credit card. As theatre, it was underwhelming—star-studded supporting cast including Oprah
Winfrey notwithstanding. As a business case, it looks more compelling. 

Apple’s 900m iPhones worldwide, more than six times as many as Netflix has subscribers, grant it access to
a massive potential audience. Analysts speculate that Apple will eventually offer them a variant of Amazon
Prime, where customers pay a flat monthly fee for some combination of news, games, cloud storage, music
and video, and which could possibly connect with the company’s iPhone subscriptions. Mr Cook stopped
short of announcing a unique subscription service, promising instead to roll out five separate
offerings, some of which are merely older services in nicer packaging. Together, they nevertheless threaten
fellow tech giants, Hollywood and banks.

Apple TV+, which got featured billing from Mr Cook, would offer original programming from Ms Winfrey,
Reese Witherspoon, Sesame Street and others in more than 100 countries. The money Apple plans to
spend on original shows - perhaps $1bn to $2bn thus far - is dwarfed by that of Netflix, which will
splurge as much as $15bn this year on original and licensed content, or Disney, whose own video-

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streaming is expected shortly. But Apple’s high-profile shows are for now meant chiefly to lure customers
into its universe of apps and services. That includes subscription services for games, a catalogue of big
American magazines (and a few newspapers, including the Wall Street Journal), and, in America, pay-TV
networks such as HBO, Showtime and Starz. You can pay for it all using your new Apple Card,
developed with bankers at Goldman Sachs. The credit card puts Apple in direct competition with banks: it
has no fees and will give users 2% cashback on purchases made via Apple Pay, the company’s payments
system - or 3% on purchases of Apple kit and services. 

Source: THE Economist, Business and finance

Mar 26th 2019 | NEW YORK

Question:
a. Discuss Porter’s five forces strategic model.
(4 marks)
b. Based on your understanding of competition and competitiveness, discuss the move by APPLE as
written in the case above.
(4 marks)
c. If you are the CEO of APPLE, would you do the same? Why?
(4 marks)
[TOTAL: 15 MARKS]

[GRAND TOTAL: 60 MARKS]