This assignment is worth 30% of the final mark for ECO201e Managerial Economics. The cut-off date for this assignment is 25th August 2015, 2359hrs. This is a group-based assignment. You should form a group of 3 members from your seminar group. Each group is required to upload a single report to MyUniSIM via your respective seminar group. Please elect a group leader. The responsibility of the group leader is to upload the report on behalf of the group. It is important for each group member to contribute substantially to the final submitted work. All group members are equally responsible for the entire submitted assignment. If you feel that the work distribution is inequitable to either yourself or your group mates, please highlight this to your instructor as soon as possible. Your instructor will then investigate and decide on any action that needs to be taken. It is not necessary for all group members to be awarded the same mark. Question 1 (a) The tourism sector is an important sector in the Singapore. Recently two incidents occurred in the Singapore tourism industry. One incident is that there are more and more tourist attractions, such as the Gardens by the Bay, the Maritime Museum and the Marine Life Park. The other incident is the greater restriction imposed by the Singapore government for firms to employ foreign labour, where many of them are working in the tourism industry. Analyse the effects on the tourism industry in Singapore when these two (2) incidents occurred simultaneously. Use suitable demand-supply diagrams to support your analysis. (15 marks) (b) The seller of Good A and Good B discovered that the number of units sold for Good A is affected by the price of Good B. When he sets the price of Good B at $5 per unit, he can sell 1200 units of Good A. However, when the price of Good B becomes $6, he can only sell 1000 units of Good A. Calculate the cross elasticity of demand between Good A and B and explain their relationship. What should the seller do to the price of Good B if he wants to earn more revenue from Good A? What should the seller do to the price of Good A if he wants to earn more revenue from Good A? Explain. (10 marks) ECO201e Assignment 2 SIM UNIVERSITY Assignment 2 – Page 3 of 5 Question 2 (a) Lawrence has a preference for burger and fries. Based on past consumption habits, he is able to provide the following information on his marginal utility (MU) levels measured in Utils when consuming burgers and fries. Quantity of Burgers MU of Burgers (Utils) Quantity of Fries MU of Fries (Utils) 1 48 1 44 2 33 2 29 3 25 3 16 4 12 4 8 5 6 5 4 6 3 6 2 Lawrence has an allowance of $20 and the price of burger is $3 per unit while the price of fries is $2 per unit. Apply the rational spending rule to find the optimal consumption of burgers and fries for Lawrence. (10 marks) (b) A T shirts producer employs workers to work on sewing machines to produce T-shirt. The following table shows the total product of T-shirt when different quantities of labour are used with a fixed amount of sewing machines. Labour Total Product Average Product Marginal Product 1 10 2 28 3 45 4 52 5 55 (i) Compute the average product and marginal product of the various quantities of labour. Comment on the changes of average and marginal product and describe their relationship as labour increases. (10 marks) (ii) Discuss the law of diminishing returns and explain whether the information in (i) support the law of diminishing returns. (5 marks) ECO201e Assignment 2 SIM UNIVERSITY Assignment 2 – Page 4 of 5 Question 3 (a) The sugarcane market can be considered as a perfectly competitive market. There are large number of small sellers producing identical sugarcane and no entry barriers, and there is also a large number of buyers and no one has any control over the price. Assume initially all the sugarcane producers are earning a normal profit. (i) Research has shown that sugarcane can also be used to produce biofuel, resulting in a strong demand for sugarcane. Examine with suitable market and firm diagrams the effects on the market price and quantity of sugarcane, the output and the profit or loss of the firm in the short run. State all your assumptions. (10 marks) (ii) What will happen to the market price and quantity of sugarcane, the total number of firms in the market, the output and the profit or loss of the firm in the long run? Explain with suitable market and firm diagrams. (5 marks) (b) Consider a perfectly competitive pizza seller whose marginal cost curve, average variable cost curve and average total cost curve are shown in the following diagram.