ECO6001:Managerial Economics Assignment

INSTRUCTIONS:

1. Answer all questions.
2. Marks for each question is mentioned against them.
3. Please return this sheet along with your case study.
4. You have to submit your assignment on Turnitin and maximum similarity allowed is 10%
5. References at the end should be mentioned as per APA style.
6. The students are expected to submit the hard copy of the assignment along with turnitin report on or before 20-05-2023.
7. Students can refer to additional material that is available related to the case.

Course Learning Outcomes

1: Demonstrate an understanding of the concepts in managerial economics, demand & supply equilibrium and use of marginal analysis in business decision making.

2: Estimate demand through regression and to forecast demand in the market.

3: Analyse market structures and match firm’s business strategies using mechanisms of pricing and price/quantity determination.

4: Evaluate the risk and uncertainty in the business decision of the firm

Question 1 -

Case Study on Marginal Analysis: Mr. Sultan is a regional media consultant for Paz Images,LLC., a UAE -based media consultant. Sultan has gathered the following data on weekly advertising media expenditures and gross sales for a major client, ABC Coffeehouse

a) Construct a table (or spreadsheet) showing marginal sales following promotion in each media.

b) If the ABC Coffeehouse has an advertising budget of AED500 per week, how should it be spent? Why?

Question 2 

Estimating Demand for Super Detergents:

Here is the story: Branded Products, LLC., based in Sharjah, UAE, is a leading producer and marketer of household laundry detergent and bleach products. About a year ago, Branded Products rolled out its new Super Detergent in 15 regional markets following its success in test markets.Branded Products, LLC. hired a marketing consulting firm to perform a test marketing of product called Super Detergent. The marketing consultants collected data on average household income (M), the population of the marketing area (N), and the price of a rival brand of Detergents (PR).At the end of the month, total demand of Super Detergent (Q) were tabulated to provide the following data from which the consultants estimated an empirical demand function for the product.

Using the marketing data from the 15 test markets shown above, estimate the parameters of the linear empirical demand function:

If any of the parameter estimates are not significant at the 5% level of significance, drop the associated explanatory variable from the model and estimate the demand function again.Using the data in Table 1, specify a linear functional form for the demand for super detergent, and run a regression to estimate the demand for super detergent.Using Excel Data Analysis, estimate the parameters of the empirical demand function specified in part a. Write your estimated demand equation.If price of the super detergent is AED3.50 per liter, average household income is AED 45, 000,the price of rival brand detergents is AED 3.00 per liter and the population (N) is 75, 000.Calculate the estimated elasticity of Demand for super detergent. Is demand elastic or inelastic? Explain.

What is the estimated income elasticity of demand for super detergent? Is Super Detergent a normal or inferior good? Explain.

By using the appropriate tests, evaluate the significance of the regression as a whole and the significance of the individual parameters at 5 percent level of significance.Interpret the R2 value.

Question 3 

Chemists at risk as prices are slashed

Big price cuts on a wide range of medicines and vitamins were promised by the supermarket chains as 30 years of price-fixing were swept aside.Many popular products, including painkillers, cough medicines, indigestion tablets and nutritional supplements are being halved in price from last night, with reductions of between 20 and 40 per cent on many others. The Office of Fair Trading called it excellent news for consumers but the body representing small pharmacies said that many would close, threatening community services.The big supermarkets trumpeted ‘millions of pounds-worth of savings’ as they competed to offer the biggest reductions. At Asda, a packet of 16 regular Anadin will be 87p, instead of $1.75, and Nurofen tablets will cost $1.14 for 16, rather than $2.29. Reductions at Tesco included a 40 per cent cut in Anadin Extra, to $1.29 for 16, while Sainsbury’s matched the Asda price for Nurofen,and reduced Seven Seas Evening Primrose Oil from $5.59 for a 60-pack to $2.79.The cuts came after the Community Pharmacy Action Group, representing small retailers,withdrew its opposition to a Court action brought by the Office of Fair Trading. The OFT had sought the abolition of resale price maintenance in the industry, exempted 30 years ago from general price-fixing rules to try to ensure the survival of small pharmacies. There are 13,500 pharmacies in Britain, of which 9,000 are small shops serving local high streets and rural communities.The action group backed out after Mr Justice Buckley said that he believed there was insufficient proof that a large number of independent pharmacies would close, or that the range of products would be reduced. But the group’s chairman, David Sharpe, said that the outcome would be a devastating blow. ‘Many pharmacists will simply not be able to survive given the buying power and aggressive pricing of the supermarkets’ he said. ‘It’s a sad day for Britain.The potential losers are the elderly, disabled and young mothers who rely on the free advice and range of services offered by the local pharmacist. We’ll fight on and hope the public will remain loyal.’ The changes will cover about 2,500 products sold without requiring a doctor’s prescription,and will have no effect on prescription drugs or on cosmetics sold by pharmacists.Prices are likely to fall even lower as competition grows. In the United States, where prices are unregulated, comparable products are markedly cheaper.John Vickers, Director-General of Fair Trading, said: ‘This is excellent news for consumers, who will now benefit from lower and more competitive prices for common household medicines.Consumers will save many millions of pounds a year.’ The Proprietary Association of Great Britain, which represents medicine and food supplement manufacturers, said it was disappointed.

Students are expected to read above case study and answer the below questions

a) To take decision on price cut for the medicine, John Vickers, Director-General of Fair Trading need to know about market structure. What kind of market structure is involved for the sale of medicines and vitamins? Explain.

b) What are the implications for barriers to entry in this market?

Question 4

Decision Under Uncertainty: Suppose the management at Al Ain Plastic LLC., is considering changing the size (capacity) of its manufacturing plant. Management has narrowed the decision to three choices. The plant’s capacity will be (1) expanded by 25 percent, (2) maintained at the current capacity, or (3) reduced by 25 percent.The outcome of this decision depends crucially on how the economy performs during the upcoming year. Thus the performance of the economy is the “state of nature” in this decision problem.For each possible decision and state of nature, the managers determine the profit outcome, or payoff, shown in the payoff matrix in table 1

.The managers do not know about the insights and competencies related to state of nature will actually occur. What decision should Al Ain Plastic LLC., make by using each of the following rules?

a) Maximax Rule

b) Maximin Rule

c) Minimax Regret Rule

d) Equal Probability Rule