1.
Group 13
Course Code: BMFM 32116
Subject Title: MANAGERIAL ECONOMICS
Lecturer: MS BARATHY DORAISAMY
NO. STUDENT’S NAME STUDENT’S ID NO.
1 CHIN WEN JIE B19080632
2 PANG JING WEN B19080631
3 SOO KAI HONG B19080598
4 HO RUI XIANG B19080622
5 LIM JIA SHENG B19080652
6 TANG SOO HEN B19080575
7 ROLLAND TEO KAI B19080592

2.
Question 1
Given that annual demand and supply for the E&E Electronics Company is given by:
QD = 7,000 + 0.6I + 0.2A – 120P and QS = - 5,000 + 110P
where Q is the quantity per year, P is price of the products, I is income per household, and A is advertising
expenditure:
a. Determine the function of demand curve if A = RM8000 and I = RM18,000, what is the demand curve.
[1 Mark]
When A= RM8,000 and I= RM18,000
QD= 7,000+ 0.6(RM18,000) + 0.2(RM8000)-120P
=7000+10800+1600-120P
=19400-120P

3.
b. Determine the equilibrium price and quantity. [2 Marks]
QD=19400-120P QS = - 5,000 + 110P
When price is equilibrium, QD=QS
19400-120P=-5000+110P
230P=24400
P=24400/230
=RM106.09
Thus, when P=RM106.09
QD= 19400-120(106.09)
= 6669.57⋍6670
QS=-5000+110(106.09)
=6669.9⋍6670

4.
c. Solve the equilibrium price and quantity if there is an increase in consumer income RM20,000
[Required to show all computations involved] [3 Marks]
Increase in demand Supply constant
QD=19400-120P +12000
=31400-120P
When price is equilibrium, QD=QS
31400-120P=-5000+110P
230P=36400
P=36400/230
=RM158.26
Thus, when P=RM106.09
QD= 31400-120(158.26)
= 12408.8⋍12409

5.
d. Based on your solution for question (c), provide the type of goods which might be involved
with relevant reasons. [2 Marks]
Soft drinks
 Not a necessity, so a big increase in price would cause people to stop buying them or look for other
brands.
 A big decrease in price or increase in quantity demanded would attract more buyers.

6.
e. Evaluate the type of price elasticity of demand for this company. [2
Marks]
Price Elasticity of Demand= [(12409-6670)/12409]x100%➗[(158.26-106.09)/158.26]x100%
=46.24➗32.96
=1.40
Since Price elasticity of demand is greater than 1 Elastic

7.
Question 2 [Total 10 Marks]
a.If a firm estimates its short-run production function to be
Suppose the firm employs 16 units of capital. Determine the equation of Total
Product (TP), Average Product (AP) and Marginal Product (MP)
[3 Marks]
TOTAL PRODUCT(TP) = Q = -0.008K3L3+11K2L2
= -0.008(16)3L3+11(16)2L2
= -32.768L3+2816L2
2
2
3
3
11
0008
.
0 L
K
L
K
Q 


Average Product(AP) =
𝑸
𝑳
= 𝑨𝑳𝟐 + 𝑩𝑳
=-32.768L2+2816L
ANSWER :
Marginal Product(MP) =
𝜟𝑸
𝜟𝑳
= 𝟑𝑨𝑳𝟐 + 𝟐𝑩𝑳
= -98.304L2 + 5632L

8.
b.A perfectly competitive firm has total revenue and total cost curves given by:
TC = 3,500 + 4Q + 0.3 Q2
i.Compute the average variable cost if the volume of sales is 190 units for the last cycle.
[3 Marks]
ANSWER :
AVC =
𝑽𝑪
𝑸
=
𝟒𝑸+𝟎.𝟑𝑸𝟐
𝑸
= 4 + 0.3Q
= 4 + 0.3(190)
= RM 61

9.
ii. Determine the level of price that the firm should set for these few months if
the sales volume is only 100 units due to lockdown.
[4 Marks]
Answer :
When Q = 100 units
TC = 3,500 + 4(100) + 0.3 (100)2
= 3,500 + 400 + 3,000
= 6,900
AC = TC/Q
= 6,900 / 100
= RM69

10.
Question 3 [Total 10 Marks]
Below is an average variable cost(AVC) and Average Revenue (AR) function
estimated to be for a small firm
AVC=500-0.03Q+0.001Q2
AR= 590 -0.03Q
where AVC is measured in ringgit per unit.
i. Based on the function given, extract the estimated marginal cost function.
[2 Marks]
ANS:
TC = AVC * Q
TC = [500-0.03Q + 0.001Q2]*Q
= 500Q – 0.03Q2 + 0.001Q3
MC = 500 – 0.06Q + 0.003Q2

11.
Determine the profit-maximizing level of output and price.
[4 Marks]
Ans
Profit Maximizing level of output occurs when MR = MC
TR = AR * Q
TR = [590 - 0.03Q]*Q
TR = 590Q – 0.03 Q2
MR = 590 – 0.06Q
At profit maximizing level of output
MR = MC
590 – 0.06Q = 500 – 0.06Q + 0.003Q2
590 – 500 = 0.06Q – 0.06Q + 0.003Q2
90 = 0.003Q2 Q= 173.21 TR = P * Q
Q2= 90 / 0.003 = 30000 TR = 590 (173.21) – 0.03( 173..21)2 101203.85 = P * Q
Q= 173.21 = 102193.9 –900.05 101203.85 / 173.21 = P
= 101203.85 584.28= P

12.
Determine the firm's expected profit or loss, if total fixed cost is expected to be RM5
million.
[4 Marks]
TR = 102193.9 –900.05
= 101203.85
Q= 173.21
Total Cost= 500Q – 0.03Q2 + 0.001Q3
= 500(173.21) - 0.03 (173.21)2 + 0.001(173.21)3
= 86605 – 900.05 + 5196.59
= 90901.54 + 5,000,000
= 5,090,901.54
101,203.85 – 5,090,901.54 = -4,989,697.69 #

13.
Question 4 [Total 10 Marks]
A monopolist’s Demand function is P = 1546 - 4Q, and its Total Cost function is
TC = 21,000 + 22Q -3Q2 + ⅓Q3, where Q is output produced and sold.
Based on the demand and total cost function above, compute the level of output and price that maximized
profit and hence determine the level of profit. [10 Marks]
TR = P(Q)
=1546 – 4Q(Q)
=1546Q – 4Q2
MR = d(TR)/dq
= d (1546Q – 4Q2) / d(Q)
= 1546Q1-1 – 2(4)Q2-1
= 1546 – 8Q
MC = d(TR)/dq
= d(21,000 + 22Q – 3Q2 + ⅓Q3) / d(Q)
= 22Q1-1 – 2(3)Q2-1 +3 (⅓)Q3-1
= 22 – 6Q + Q2

14.
MR = MC
1546 – 8Q = 22 – 6Q + Q2
Q2 = – 8Q + 6Q – 22 + 1546
Q2 = –2Q + 1524
Q2 + 2Q – 1524 = 0
𝒙 =
−𝟐 ± 𝟐𝟐 − 𝟒(𝟏)(−𝟏𝟓𝟐𝟒)
𝟐(𝟏)
𝒙 =
−𝟐 ± 𝟒 + 𝟔𝟎𝟗𝟔
𝟐
𝒙 =
−𝟐 ± 𝟔𝟏𝟎𝟎
𝟐

15.
X= 38.05 X= -40.0512
Q = 38 units
P = 1546 – 4(38)
=1546 – 152
=RM 1394

16.
Q 5a.
The practice of price discrimination in an economy is
always relate to unethical in the field of business.
Evaluate the statement above with relevant examples.
• What is price discrimination
The practice of selling the same product while charging
different prices to different customers.
Example: Airline tickets will be sold much expensive to
travellers during the holidays where people are willling to
travel during holidays while during normal weekdays
prices are set to lower.

17.
Why it’s Unethical
It’s consider unfair
Companies can create unfair price where they sell their
products at a higher price to a certain types of group of people
base on their race, gender or income level.
Lower product choices
Monopoly companies can take advantage of price
discrimination to capture a greater market share and establish a
high barrier to entry. In addition, lower-income consumers may
not be able to afford the high prices charged by the companies.

18.
Why it’s Unethical
Reduces consumer surplus
Price discrimination transfers the surplus from consumer to
producer, thus reducing the benefit consumers can receive.
Adminstration costs
Business have to pay for adminstration cost when they
carry out price discrimination.

19.
b.Explain the usefulness of production function
in the analysis of the firm’s production.
Helps in making short-term and long term decisions in such
as finding the optimum level of output and deciding the
production level.
Helps in calculating the least cost combination of various
factor inputs at a given level of output.
Gives logical reasons for making decisions. For example, if
price of one input falls, one can easily shift to other inputs.

20.
 The necessity to comply with rules and
regulations is linked to compliance risk. These
also allude to the necessity to act in
accordance with creditors' and consumers'
wishes, such as through strong corporate
governance.Financial risks are those that
affect your company's financial structure,
investments, and financial processes. A
examination of your everyday financial
activities, particularly cash flows, is required
to identify financial risks. If you are overly
reliant on a single customer and cannot
afford them, your company's viability may be
jeopardised.
QUESTION 6
Analyse the economic conditions which are relevant to
managerial decision making by considering the type of
risk will be facing by a firm.
 The possibility and effects of an event are
characterised as risk. Risk management is a
field in which methods, tactics, and
instruments are used to manage these risks.
Risk management focuses on identifying what
could go wrong, determining which risks must
be addressed, and putting risk management
strategies in place. Companies that define
threats will be better prepared and will be
able to deal with them more efficiently.
 Businesses encounter numerous hazards, and
risk management should be at the forefront of
every company's strategic planning. Risk
management assists you in identifying and
resolving your company's difficulties,
increasing your chances of accomplishing your
business objectives. Risk management is
significantly more crucial when the organisation
wants to attempt something new, such as
introduce a new product or enter new markets.
In situations like these, competitors that
follow you to these markets or technical
advancements that render you obsolete are
two threats.

21.
 Risk management is not a stand-alone activity. Continuous
monitoring and assessment are critical to the effectiveness of
your Risk Management strategy. This monitoring ensures that
risk is correctly identified and assessed, as well as that
controls are properly implemented. It's also a chance to learn
from your mistakes and improve your risk management
strategy.
 Risk assessment allows you to assess the importance of
hazards to your organisation and determine whether to
accept them or take steps to prevent or mitigate them. Once
the risks have been discovered, they should be categorised in
order to be assessed. It is possible to consider the ramifications
and the likelihood of increased danger. The measurement of
high, medium, or low effect and likelihood is generally
accepted by most organisations. This can then be compared to
your business plan, taking into account legal requirements,
expenditures, and investor concerns, to determine whether
risks may have an impact on your objectives.

22.
 Inflation rate
Although price/cost forecasting implicitly considers inflation,
inflation can be quite volatile from year to year for some countries.
Inflation rates mean that the parent and subsidiary countries may
have different inflation rates, so the expected inflation rate must
be included in the calculation.
 Exchange rate
Since it is difficult to accurately forecast exchange rates, different
scenarios can be considered together with their probability of
occurrence. Exchange rates is another complication, the exchange
rate between the parent and subsidiary country will change during
the project period may be based on the differential inflation
between the two countries.
QUESTION 7
Describe the additional complications
facing an MNC compared with a
domestic corporation when it is
evaluating a capital budgeting project.

23.
 Tax differences
Tax differences, because the tax rates differ between the two
location and thus has to be taken into account when a capital project
is under consideration.
 Financing arrangement
Financing costs are usually captured by the discount rate. However,
when foreign projects are partially financed by foreign subsidiaries,
a more accurate approach is to separate the parent subsidiary
investment and explicitly consider foreign loan payments as cash
outflows.
 Blocked funds
Some countries require that the earnings generated by the
subsidiary be reinvested locally for at least a certain period of time
before they can be remitted to the parent.
QUESTION 7
Describe the additional complications
facing an MNC compared with a
domestic corporation when it is
evaluating a capital budgeting project.