mba502_assignment_1final.docx

8/8/2019 MBA502_Assignment_1Final.docx

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Part A: MCQs

Answers:

1 2 3 4 5 6 7 8 9 10

D D A C B C E D A B

NOTE: Questions and detailed answers for the art A is shown on a!es 10 to 15"

#uita$le answers for 9 %annot $e found in the !i&en list' see a!e 15"

((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((

Part B: Short Answer Questions

01. )ihal ta*es a +ear off fro, his -o$ to train the Asian .a,es 400 ,etres e&ent to $e

held one +ear later" /he annual in%o,e fro, his -o$ is s"600'000" is trainin! %osts

%oa%hs fee a,ount to s"180'000 and ,eal eenses a,ount to another

s"200'000"Bein! a ro,isin! athlete' the inistr+ of #orts has !i&en )ihal a sorts

s%holarshi worth s"100'000"

a Cal%ulate the oortunit+ %ost in&ol&ed in #unils de%ision to ta*e one +ear off

fro, his -o$ to train for the Asian .a,es Cha,ionshis

$ hat is the annual oortunit+ %ost to the %ountr+ of trainin! this athlete

((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((

Answer 01:

Train for the Asian Games Doin Niha!"s #o$

#alar+ of his -o$ #%holarshi &alue ( /rainin! Costs' 600'000 s' 100'000 ( s" 180'000

s" ( 80'000

Assu,tions:

• /rainin! %ost to $e aid $+ )ihal"

• /here is no se%ial food to $e ta*en durin! his trainin! eriod" ;rrese%ti&e to

these two otions' )ihal an+wa+ has to $ear the %ost of food s' 200'000 for

his sur&i&al"

• /rainin! %ost of s' 180'000 to $e aid $+ )ihal"

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a% As er the a$o&e anal+sis %onsiderin! two otions of )ihal and %onsiderin! the

definition of oortunit+ %ost' %ost or &alue of the $est alternati&e for!one

hi!hest &alued oortunit+ lost' the oortunit+ %ost in&ol&ed in )ihals

de%ision to ta*e +ear off fro, his -o$ to train for Asian !a,es %ha,ionshi is

s' 600'000"

$% Annual oortunit+ %ost to the %ountr+ of trainin! this athlete is s' 100'000"

#in%e the !o&ern,ent would ha&e $een sent this s" 100'000 so,ewhere else"

((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((

0&. /he ta$le $elow shows the de,and and sul+ s%hedules for CDs

Pri'e ()s. *er

CD%

Quantit+ Deman,e,

(CDs%

Quantit+ Su**!ie, (CDs%

500 300 100

600 250 150

700 200 200

800 150 250

900 100 300

A% Draw the dia!ra, < state the e=uili$riu, ri%e < =uantit+"

B% ;f the ri%e of a CD is s" 600' des%ri$e the situation in the CD ,ar*et" Elain

how ,ar*et e=uili$riu, is restored

C% ;f the ri%e of a CD is s" 800' des%ri$e the situation in the CD ,ar*et" Elain

how ,ar*et e=uili$riu, is restored

D%A rise in in%o,es in%reases the =uantit+ of CDs de,anded $+ 100 at ea%h ri%e"

hat is the new e=uili$riu, ri%e and =uantit+

E% An in%rease in the nu,$er of re%ordin! studios in%reases the =uantit+ of CDs

sulied $+ 75 at ea%h ri%e" >eole download ,ore ,usi% fro, the internet and the

=uantit+ de,anded of CDs de%reases $+ 25 at ea%h ri%e" ith no %han!e in

in%o,es' what is the new e=uili$riu, ri%e and =uantit+

Answer 0&:

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A%

50 100 150 200 250 300 350

400

500

600

700

800

900

1000

Qt+ (CDs%

Pri'e ()s- CD%

Graph (02 – 01)

Consumers and producers react differently to price changes. Higher prices tend to

reduce demand while encouraging supply, and lower prices increase demand while

discouraging supply.

Economic theory suggests that, in a free market there will be a single price which

brings demand and supply into balance, called equilibrium price.

As per the given schedule, equilibrium price is Rs,700 at 200 CDs.

B) When the price of a CD is Rs. 600, Qty supply & Qty demand can be identified by

point A and B as shown in Graph (02 – 02). In this situation, an excess demand of 100

[250 – 150] CD is created.

However due to this excess demand consumer willing to pay more and they influence

the supplier to produce more at higher price. As a result price starts rising and

eventually stabilizes at P = Rs. 700 and Q = CDs 200

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50 100 150 200 250 300

400

450

500

550

600

650

Qty (CDs)

Price (Rs/ CD)

Graph (02 – 02)

C) When the price of a CD is Rs. 800, Qty supply & Qty demand can be identified by

point E and F as shown in Graph (02 – 02). In this situation an excess Supply of 100

(250-150) CD is created.

However due to this excess supply supplier wants to sell their excess stock &

competition is created to sell at lower price. As a result price starts falling and

eventually stabilizes at P = Rs. 700 and Q = CDs 200

D) When the Demand for CDs at each price increases by 100 units the demand curve

shifts to right as shown by D1 on the Graph (02 – 03). This generates a new

equilibrium as shown by O in the Graph (02 – 03) where the price is Rs. 800 and

quantity is 250 CDs.

50 100 150 200 250 300 350 400 450

400

500

600

700

800

900

1000

Qty (CDs)

Price (Rs/ CD)

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Graph (02 – 03)

E) The increase in the number CDs by 75 is shown by S1 in Graph (02 – 04). The

decrease in CDs by 25 is shown by D1 in Graph (02 – 04). As there is no income

change there is no change in Demand due to income. Therefore the new

equilibrium is arrived at the intersection of D1 and S1 where Price is Rs. 600 and

the number of CDs is 225.

50 100 150 200 250 300 350 400 450

400

450

500

550

600

650

Qty (CDs)

Price (Rs/ CD)

Graph (02 – 04)

--------------------------------------------------------------------------------------------------------

0. /he ri%e of $ottled water rises fro, s" 19 to s" 21 a $ottle' and the

=uantit+ de,anded falls fro, 11'000 to 9'000 $ottles a wee*" ?se the Ar% ri%e

elasti%it+ of de,and for,ula to %al%ulate:

A% /he er%enta!e %han!e in the ri%e of $ottled water

B% /he er%enta!e %han!e in the =uantit+ de,anded of $ottled water

C% /he ri%e elasti%it+ of de,and for $ottled water on the Ar% >ED for,ula

D% At what ri%e is the ri%e elasti%it+ of de,and for $ottled water e=ual to +our

answer in art C

E% ;s the de,and for %ar$onated drin*s li*el+ to $e ,ore elasti% or less elasti%

than the de,and for $ottled water h+

/% Cal%ulate the %han!e in the total re&enue of sellers of $ottled water due to the

%han!e in ri%e

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G% ;f the de,and %ur&e for $ottled water is a strai!ht(line de,and %ur&e' is the

ri%e at whi%h the de,and for $ottled water unit elasti% a hi!her ri%e or a

lower ri%e than +our answer to art C h+

((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((Answer 0:

Pri'e - ater $ott!e

)s

Qt+ Deman,e,- ee2

19 11'000

21 9'000

A% >er%enta!e %han!e in >ri%e of @)ew >ri%e ;nitial >ri%e 100

ater $ottle )ew >ri%e ;nitial >ri%e2

@21(19

10021192

@ 2 20 100

@ 10F

B% >er%enta!e %han!e in Qt+ @

)ew Qt+ de,and ;nitial Qt+ de,and

100

De,anded )ew Qt+ de,and ;nitial Qt+ de,and2

@9000(11000

100

9000110002

@ (2000 1000 100

@ (20F

C% Ar% ri%e elasti%it+ of de,and @ G Q >H I>1>2 2

Q1Q2 2

@ G9000(11000 21(19HI1921 2

110009000 2

@ G(2000 2H I 40 20000

@ (2

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7/17

J

Price elasticity of demand for bottled water @ >er%enta!e Chan!e in Qt+ de,anded

>er%enta!e Chan!e in >ri%e

= -20% / 10%

@ (2

D% By definition of arc elasticity it is calculated at the average price and average

quantity. Therefore in this case it has to be Rs, 20 where the average price is

[19+21] / 2.

E% #u$stitute is one of the deter,inants of elasti%it+ of de,and"Car$onated drin*s as a whole inelasti%' $e%ause whether or not the ri%e

in%reasesde%reases' de,and would not de%reasein%rease $+ a whole lot' sin%e its the%onsu,ers referred %hoi%e of drin*s -ust li*e ,il* is inelasti%" Kust $e%ause the ri%e

in%reases' doesnt ,ean that %onsu,ers will start to drin* water all the ti,e' the+ll -ust

drin* less a,ounts of soft drin* than usual and &i%e &ersa" But if we !et %ertain $rand

li*e Co%a Cola it is elasti%' sin%e it has ,an+ alternati&e $rands"But de,and for %ar$onated drin*s li*el+ to $e ,ore elasti% than the de,and for

$ottled water in lon! run" /his is $e%ause %ar$onated drin*s as a whole ha&e ,ore

su$stitutes li*e water' ,il*' fruit drin*s et%" than water"

/% /otal re&enue sellin! at s 19 $ottle @ 19 11000@ s' 209'000

/otal re&enue sellin! at s 19 $ottle @ 21 9000@ s' 189'000

/he %han!e in the total re&enue @ 189000 209000@ s' ( 20'000

/herefore the %han!e in the total re&enue of sellers of $ottled water due to the %han!e

in ri%e is s' 20'000 lower than the ori!inal"

G%

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Elasti%it+ of de,and will de%rease alon! the len!th of the downward sloin! strai!ht(

line de,and %ur&e' $ein! infinite where it tou%hes the &erti%al ais and Lero where it

tou%hes the horiLontal ais"

Answer for C is 2 and it is in the ran!e of Ed M 1 re!ion of the a$o&e !rah"

/herefore the de,and for $ottled water unit elasti% i s a t a lower ri%e than the

answer to art C"

(((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((

03. A %o,uter %hi ,anufa%turer has esti,ated the followin! relation $etween

the ,ar!inal %ost C of rodu%tion and ,onthl+ outut

C@ N100N 0"004Q

A% Cal%ulate the C of rodu%tion at 2500' 5000' and 7500 units of oututB% Cal%ulate the outut le&el when C@ N100' N125' and N 150C% Cal%ulate the rofit ,ai,iLin! le&el of outut if ri%e is sta$le at N 150 er %hi((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((Answer 03:

A% Cal%ulate C $ased on !i&en Q &alues as er the ta$le 04 01 usin! for,ula'

C@ N100N 0"004Q

Q 4nits of Out*ut Marina! Cost (MC%

2500 110

5000 120

7500 130

/a$le 04 01B% Cal%ulate Q $ased on !i&en C &alues as er the ta$le 04 02 usin! for,ula'

C@ N100N 0"004Q

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Marina! Cost (MC% Q 4nits of Out*ut

100 0

125 6250

150 12500

/a$le 04 02

.rah 04 01

Output,Q

MC,Rs

Price,Rs TR,Rs

MR,Rs

0 100 150 0 150

2500 110 15037500

0 150

5000 120 15075000

0 150

6250 125 15093750

0 150

7500 130 150 1125000 150

12500 150 15018750

00 150

@ / Q / @ >ri%e Q

#in%e ie%e is sta$le at N 150' !rah is a strai!ht line whi%h is arallel to the I

ais' as shown in .rah 04 01" hen rofit ,ai,iLation C @ whi%h is the

oint 12500'150"

/herefore the rofit ,ai,iLin! le&el of outut is 1&500' if ri%e is sta$le at N 150 er%hi"

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Master of Business A,ministration (MBA &013%

Course: MBA 50& E'onomi' Ana!+sis for Business

Assinment 1

(Questions & Answers)

Part A: MCQs

1 hat is the oortunit+ %ost of une,lo+ed la$our

A a!es that the une,lo+ed %ould ha&e earned

B Jutut the une,lo+ed %ould ha&e rodu%ed

C .o&ern,ent funds to suort the une,lo+ed

D Oero

2 hi%h of the followin! would %ause the rodu%tion ossi$ilit+ frontier for an

e%ono,+ to shift outwards

i A redu%tion in the le&el of une,lo+,ent

ii A rise in the rate of in&est,ent

iii A fall in the ri%e of one fa%tor of rodu%tion

i& A rise in outut er wor*er

A i < ii onl+

B i' ii < iii onl+

C i' iii < i& onl+

D ii < i& onl+

3 ;n a free enterrise e%ono,+' $ased on the ri%e s+ste,' the allo%ation of s%ar%e

resour%es $etween alternati&e uses is deter,ined

A A%%ordin! to rofita$ilit+ in the rodu%t ,ar*et

B B+ the tastes and referen%es of %onsu,ers

C A%%ordin! to the !reatest oortunit+ %ost of the fa%tors

D B+ a %entral lannin! authorit+

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Price of X

D

DQty of X

4 De,and %ur&e DD shows that

A ore I is de,anded as its ri%e rises

B As ,ore I is de,anded' the ri%e rises

C ore I is de,anded as its ri%e falls

D /he onl+ fa%tor that affe%ts de,and is its own ri%e

5 /he ;f the de,and %ur&e for le,ons is >d @ 20 ( 5 Q' and the sul+ %ur&e for

le,ons is >s @ 2 1 Q where > is ,easured in s" er unit' and Q stands for

=uantit+' what is the e=uili$riu, ri%e for le,ons

A s" 3 er unit

B s" 5 er unit

C s" 8 er unit

D s" 10 er unit

((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((

Answer (5%:

>d @ 20 ( 5 Q (((((((((((((( 1>s @ 2 1 Q (((((((((((((( 2

At e=uli$riu, >d @ >s'

/herefore' 20(5Q @ 21Q

6Q @ 18

Q @ 3

/hen >d @ >s @ 21Q @ 5

/herefore e=uili$riu, ri%e for le,on is s"5

#a,e %an $e deri&ed fro, the followin! sul+ < de,and %ur&es

QtySupply, Q

Price!"it,P#

Price!"it,P$

%!"it$& %'$& %'$&

1 15 3

2 10 4

3 5 5

4 0 6

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12/17

((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((

6 /he de,and %ur&e for ta$le tennis ra%*ets is >d @ 300 ( 6 Q' and the sul+ %ur&e

for ta$le tennis ra%*ets is >s @ 20 10 Q" > is ,easured in s" er ra%*et' and Q in

nu,$er of ra%*ets sold er da+" ;f the ri%e of a ta$le tennis ra%*et is set at s" 120'

the ta$le tennis ra%*et ,ar*et will eerien%e:

A E=uili$riu,

B An e%ess de,and of 10 ra%*ets a da+

C An e%ess de,and of 20 ra%*ets a da+

D An e%ess sul+ of 20 ra%*ets a da+

((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((

Answer (6%:

>d @ 300 ( 6 Q

>s @ 20 10 Q

Qty, Q Price!"it, P# Price!"it, P$

%!"it$& %'$& %'$&

10 240 120

20 180 220

30 120 320

40 60 420

50 0 520

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13/17

At >s @ 120'

2010Qs @ 120

/hen Qs @ 10

#in%e ri%e is s 120 usin! >d @ 300 ( 6 Q' Qd %an $e %al%ulated"

300 ( 6Qd @ 120 P" Qd @ 30

/herefore if the tennis ra%*et is set at s120' there will $e an e%ess de,and of 20 30

20 ra%*ets a da+ %an $e eerien%ed"

((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((

7 /he %ross elasti%it+ of de,and for %ars with rese%t to %han!es in the ri%e of etrol

is (0"5" At an a&era!e ri%e er %ar of N 5000' the nu,$er of %ars sold er wee* is

10'000" ;f the ri%e of %ars re,ains un%han!ed $ut the ri%e of etrol in%reases fro,

40 %ents to 44 %ents er litre' the nu,$er of %ars sold will fall to

A 5000

B 7500

C 8500

D 9000

E 9500

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14/17

((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((

Answer (7%:

IED @

>er%enta!e Chan!e in Qt+ de,anded of Cars

>er%enta!e Chan!e in >ri%e of >etrol

IED @ G QCar QCar H G>>etrol >>etrolH(0"5 @ G QCar 10'000H G4044(40H/herefore QCar @ (500

/hen nu,$er %ar sold fall $+ 500 < it is 10000(500 @ 9500

((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((8 A $usiness %urrentl+ sellin! 10'000 units of its rodu%t er ,onth' lans to redu%e

the retail ri%e fro, N 1 to N 0"90" ;t *nows fro, re&ious eerien%e that the ri%e

elasti%it+ of de,and for this rodu%t is 1"5

Assu,in! no other %han!es' the sales whi%h the $usiness %an now ee%t will $e

A" 8500 B 9'000 C 11'000 D 11'500

((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((

Answer (8%:

>ED @ >er%enta!e Chan!e in Qt+ de,anded

>er%enta!e Chan!e in >ri%e

>ED @ G Q QH G> >H

(1"5 @ G Q 10'000H G10"9(1H

/herefore'

Q @ 1500

/herefore new sales units @ 10000 1500 @ 11'500

((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((((

9 )or,al rofit is:

A /he r o f it t h a t t he o w n e r %a n e a r n fr o, t he $u s i n e ss i n a nor,al +ear

B /he a&era!e return for the $usiness that the owner is in

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15/17

C /he hi!hest return for the $usiness that the owner is in

D /he tar!et rofit for the +ear set $+ the owner

)or,al rofit is defined as the ,ini,u, reward that is -ust suffi%ient to *ee the

entrereneur sul+in! their enterrise" ;n other words' the reward is -ust %o&erin!

oortunit+ %ost ( that is' -ust $etter than the net $est alternati&e" owarth' n"d"

Assu,ed in a nor,al +ear' owner %an onl+ earn a nor,al rofit"

)or,al >rofit @ /otal re&enue Eli%it %osts ;,li%it %osts @ 0 onse*a' 2013'

"174

10 E%ono,i% rofit is:

A /he differen%e $etween total re&enue and total eli%it %osts

B /he d i f f ere n % e $ e t w e e n t o t a l re & e nue a nd t o t a l oo r t un i t + % os t s

C #+non+,ous with nor,al rofit

D Co,osed of nor,al rofit lus a$nor,al rofit

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16/17

'efere"ce$(

onse*a' A"/" 2013" Economic Theory and Management Practice, Colo,$o:

>ost!raduate ;nstitute of ana!e,ent >u$li%ation"

owarth' " n"d"" Economics

Online" etrie&ed fro, htt:www"e%ono,i%sonline"%o"u*BusinessRe%ono,i%s>rofit

s"ht,l

Page | 16

http://www.economicsonline.co.uk/Business_economics/Profits.htmlhttp://www.economicsonline.co.uk/Business_economics/Profits.htmlhttp://www.economicsonline.co.uk/Business_economics/Profits.htmlhttp://www.economicsonline.co.uk/Business_economics/Profits.htmlhttp://www.economicsonline.co.uk/Business_economics/Profits.html


17/17

eihtae: &59

Date Due: Grou* C 13 /e$ &013

>rof" A"/"onse*a

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mba502_assignment_1final.docx

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