Dear Prof, ?Please help to answer this Part 1 - question 2.4, Part 2 - question 2 and 3, Part 3 - All, Part 4 - Question 1. ??
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The purpose of PART 1 of this assignment is to enable students to understand fundamental economic
concepts such as expected returns, profits and prices; and to apply his / her knowledge on factors
affecting elasticity of demand and elasticity of supply of goods and services.
1. Two investments have the following expected returns (net present values) and standard
deviation of returns.
Which one has a higher risk? Justify your answer.
2. The AIROD Aircraft Company manufacturers small, pleasure?use aircraft. Based on past
experience, sales volume appears to be affected by changes in the price of the planes and by the
state of the economy as measured by consumers? disposal personal income. The following data
pertaining to AIROD Aircraft Company sales, selling prices and consumers? personal income were
DISPOSIBLE PERSONAL INCOME (IN
CONSTANT 2013 in RM BILLIONS)
1. Estimate the arc price elasticity of demand using the 2013 and 2014 data.
2. Estimate the arc income elasticity of demand using the 2013 and 2014 data.
3. Assuming that these estimates are expected to remain stable during 2015. Forecast 2015
levels for AIROD Aircraft Company assuming that its aircraft prices remain constant at 2014
level and that disposable personal income will increase by RM40 billion. Also assume that
arc income elasticity computed in (b) above is the best available estimate of income
4. Forecast 2015 sales for AIROD Aircraft Company given that its aircraft prices will increase by
RM20 from 2014 levels and that disposable personal income will increase by RM40 billion.
Assume that the price and income affects are independent and additive and that the arc
income and price elasticities computed in parts (a) and (b) are the best available estimates of
these elasticities to be used in making the forecast.
[TOTAL MARKS : 20]
The purpose of PART 2 of this assignment is to enhance the analytical skill of the students on
production functions, cost minimisation, profits maximisation and to appreciate their usefulness in
the real world.
1. Data on Gross Domestic Product (GDP), Labour and Real Capital for Mexico from 1955-1974 is
shown in Table 1 below:
Table 1: Real GDP, Labour and Real Capital for Mexico from 1955-1974
GDP (million of 1960
CAPITAL (million of 1960 Peso)
(thousands of people)
1. Fit a regression equation using GDP as the dependent variable and Labour & Capital as the
independent variables. (Use logarithm for all variables)
2. Fit a regression equation using GDP/Labour as the dependent variable and GDP/Capital as the
independent variable. (Use logarithm for all variables)
3. Determine whether this production function exhibits increasing, decreasing or constant returns
to scale and show with suitable diagram.
[TOTAL MARKS : 20]
The purpose of PART 3 of this assignment is to enable students to evaluate levels of competitiveness
in various market structures and to introduce the correct strategies in order to obtain competitive
edge in a selected market.
1. Micheal Porter developed a conceptual framework for identifying the competitive advantage
from FIVE (5) forces of competition in a relevant market. Using a suitable diagram, critically
explain the Porter?s Five Forces Strategic Framework.
2. Alchem (L)is a price leader in the polyglue market. All 10 other manufacturers (follower [F] firms)
sell polyglue at the same price as Alchem. Alchem allows the other firms to sell as much as they
wish at the establised price and supplies the remainder of the demand itself. Total demand for
polyglue is given by the following function ( Q T = QL + QF):
P = 10,000 ? 10QT
Alchem?s marginal cost function for manufacturing and selling polyglue is:
MCL = 100 + 3QL
The aggregate marginal cost function for the other manufacturers of polyglue is:
?MCF= 50 + 2QF
a) To maximise profits, how much polyglue should Alchem produce and what price should it
b) What is the total market demand for polyglue at the price established by Alchem in Part (a)?
How much of total demand do the follower firms supply?
[TOTAL MARKS : 20]
PART 4 :
The purpose of PART 4 of this assignment is to ensure that the students are able to apply their
knowledge on market theories in assesing current events in the competitive real world.
DRAM Chipmakers Pay Enormous Fines for Forming A Global CARTEL
The world?s top for manufacturers on inexpensive random access memory chips, a key component of
all consumer electronic devices, agreed to fines and jail terms for several executive because of 19992002 price fixing. The criminal conspiracy raised prices 400 per cent in a six-month period from US$1
to US$4 per 100 megabits and then orchestrated maintaining the price at US$3. DRAM chips are
generic and easily substitutable between suppliers. As a result, a CARTEL agreement to limit
production is necessary to maintain price above competitive levels. SAMSUNG and HYNIX, two
KOREA firms that produce the majority of the chips, paid US$300 million and US$185 million fines,
respectively. Infineon Technologies or Germany paid a US$160 million fine, and four executives went
to jail for several months and paid individual fines of US$250,000. Micron Technology of Boise, Idaho,
received immunity for cooperating with the prosecutors and complainants DELL and HP in making
Source : Based on `SAMSUNG to pay?, Wall Street Journal (October 14, 2005). pp 43. and `Hynix Pleads Guilty ?, Wall Street
Journal (April 22, 2004). pp.86.
Please read the article above and answer the following questions:
1. Use a suitable diagram to explain the price-output determination for a TWO (2) -firm Cartel
profit maximisation and the allocation of restricted output respectively.
2. Suppose TWO (2) KOREA electronics companies, SAMSUNG (firm S) and HYNIX (firm T), jointly
hold a patent in a component used on DRAM. Demand for the component is given by the
P = 1,000 ? QS ? QT
where QS and QT are the quantities sold by the respective firms and P is the (market) selling
price. The total cost functions of manufacturing and selling the component for the respective
TCs = 70,000 + 5QS+ 0.252S
TCt = 110,000 + 5QT = 0.152T
Suppose that the TWO (2) firms act independently, determine the optimal output and price
with each firm seeking to maximize its own total profit from the sale of the components.
Suppose that the TWO (2) firms decide to form a CARTEL and act as a monopolist to
maximise total profits from the production and sales of the components. Determine the
optimal output, market share and company total profit when the CARTEL is occurs.
[TOTAL MARKS: 40]
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