ECO201e Managerial Economics Assignment 2 – Group-based Assignment January 2017 PresentationECO201e Assignment 2 SIM UNIVERSITY Assignment 2 – Page 2 of 6 Group-based Assignment This assignment is worth 30% of the final mark for ECO201e Managerial Economics. The cut-off date for this assignment is 28 Feb 2017, 2355hrs. 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 Canvas 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. ___________________________________________________________________________ECO201e Assignment 2 SIM UNIVERSITY Assignment 2 – Page 3 of 6 Important Note: Grading of TMA/GBA/ECA Submissions Marks awarded to your assignment are based on the following guidelines: 1. 80% of the marks are allocated to the content of your answers:  The marks awarded to what your answers cover depend on the extent to which they cover the key points that correctly and comprehensively address each question.  The key points should be supported by evidence drawn from course materials and, wherever relevant, from other credible sources. 2. 20% of the marks are allocated to the presentation of your answers: Wherever applicable, the marks awarded to how your answers are presented depend on the extent to which your answers:  form a sound reasoning by developing those key points in a clear, logical and succinct manner;  provide proper and adequate in-text citations and referencing to content drawn from course materials and other credible sources;  strictly follow APA formatting and style guidelines1, in particular for: • in-text citations and end-of-report references; • the identification of figures and tables;  use, wherever relevant, the specialised vocabulary and terminology commonly used in discussions about the topic(s) covered by each question;  provide a reference or bibliography at the end of the main report;  include the less relevant details in an Appendix;  use sentence constructions that are grammatically and syntactically correct;  are free from spelling mistakes; present the workings, numerical formulations and results in a logical manner that follows the APA formatting and style guidelines;  design and present graphs, diagrams and plots that follow the APA formatting and style guidelines;  are highly original;  have proper formatting, which may: • include a properly formatted cover page; • respect the answer length/word count set out in the assignment guidelines, if any is prescribed; • present answers in paragraphs with proper spacing and page margins; • include page numbers and appendices, if necessary. 1 You can find a short tutorial on the APA formatting and style guidelines here: https://is.gd/mgEOnC . Additional details (pertaining to tables and figures) can be found here: https://is.gd/O4vDdT .ECO201e Assignment 2 SIM UNIVERSITY Assignment 2 – Page 4 of 6 Question 1 (a) You are taking two courses this semester: Economics and Mathematics. You have two examinations coming up in both classes. The table below shows your grade on each examination for different numbers of hours spent studying for each course: Your goal is to maximise your average grade on the two examinations. Use the benefitcost analysis to decide how much time you would spend studying for each examination if you had three hours in total to prepare for the two examinations. Note: you can only choose to study in increments of one hour. In your analysis, identify the appropriate marginal costs and benefits, and explain how the economic concept of decision making on the margin is used to solve the problem. (10 marks) (b) When Steven graduated from university and got a job, his income rose from $15,000 to $60,000. His consumption habits also changed drastically. For instant noodles, his consumption falls from 7 packs a week to zero. For movies, his consumption rises from 1 per year to 11 per year. (i) Calculate his income elasticity of demand for both instant noodles and movies using the midpoint formula. (6 marks) (ii) Explain how you would classify the two goods, instant noodles and movies, based on the income elasticity of demand. (2 marks) (iii) Define what the income elasticity of demand measures. If more consumption is generally preferred to less consumption, why do some goods have negative income elasticities? (4 marks) (iv) If the economy enters a recession, how would this affect the revenues of the seller of instant noodles and the movie theatre operator? Explain. (3 marks) Question 2 (a) You have decided to spend $40 this month on Fish and Bread. The total utility you receive from different quantities of fish and bread are shown in the table below. The prices of fish and bread are both $10 per unit.ECO201e Assignment 2 SIM UNIVERSITY Assignment 2 – Page 5 of 6 Apply the rational spending rule to determine the combination of Fish and Bread that optimises your total utility. Explain why applying the rational spending rule is a more appropriate decision making tool for optimizing consumption, compared to simply evaluating the total utility of different bundles of goods. (10 marks) (b) A large pharmaceutical company estimates that the demand function for its medicine is P = 60 – 5Q. It is currently selling the medicine at $40 per unit. (i) Calculate the price elasticity of demand at this price. (5 marks) (ii) Do you think it is a good idea for the company to raise its price to earn more revenue? Explain your answer using the relevant elasticity concepts without reference to graphs or equations. (5 marks) (iii) At what price does the company maximise its revenue? Show your work. (5 marks) Question 3 The following graph shows the cost curves of a perfectly competitive firm. (a) If the market price is $6, comment on the profit or loss incurred by the firm. Explain whether the firm will operate or shut down in the short run. (5 marks)ECO201e Assignment 2 SIM UNIVERSITY Assignment 2 – Page 6 of 6 (b) If the market price is $3, comment on the profit or loss incurred by the firm. Explain whether the firm will operate or shut down in the short run. (5 marks) (c) If the market price is $1, comment on the profit or loss incurred by the firm. Explain whether the firm will operate or shut down in the short run. (5 marks) (d) Consider the three points, A, B, and C marked on the graph. Discuss the characteristics of these three points. Which point represents the long run equilibrium of the firm? (10 marks) Question 4 Consider a monopolist producer who faces a linear demand curve P = 24 – Q, where P is the price the producer charges and Q is the quantity consumers purchase. The producer produces this good at a constant average and marginal cost of $6. (a) Identify the price and quantity if the monopolist wishes to maximise revenue. (5 marks) (b) Identify the price and quantity if the monopolist wishes to maximise profits. Support your answer with a diagram. (10 marks) (c) Suppose the government imposes a tax of T dollars per unit on the producer. By how much will the consumer shoulder the tax burden? By how much will the producer shoulder the tax burden? Explain why, in general, the consumer shoulders part of a tax burden even when the tax is imposed directly on the producer. (10 marks) ---- END OF ASSIGNMENT ----