Assignment 01
Eco404 (Managerial Economics)
Marks: 20
Eco404 (Managerial Economics)
Marks: 20
Objectives of the study:
The objectives of this assignment are to familiarize students with the:
- Types of costs like explicit and implicit costs
- Types of profits like business and economic profit
- Regression function and its components
- Elasticity calculation methods
The Case:
Pak Elektron Limited (PEL) as the pioneer manufacturer of electrical goods in Pakistan was established in 1956 in technical collaboration with M/s AEG of Germany. Later on, it was taken over by Saigol Group of Companies in October 1978. Since its inception, the company has always been contributing towards the advancement and development of the engineering sector in Pakistan by introducing a range of quality electrical equipments and home appliances. Appliances division of PEL consists of appliances manufacturing like Air Conditioners, Refrigerators, Deep Freezers etc. Power division of PEL is one of the major electrical equipment suppliers to Water and Power Development Authority (WAPDA) and Karachi Electrical Supply Corporation (KESC), which are the largest power utilities in Pakistan. A hypothetical study was conducted on PEL in year 2012 which revealed that annually, on average, the company receives Rs.59,35,680 from
selling its products while spends, Rs.12,55,000 in wages of its employees and on producing hundreds of engineers, skilled workers and technicians through its apprenticeship schemes and training programmes, Rs.6,45,000 in payments of rented buildings, and Rs.5,62,000 in interest payments on bank loans taken for production process. The study also found the fact that if PEL’s manager would work for some other renowned, emerging local and multinational electronics company, he could earn at most
Rs.22,18,000 per year.
Requirement:
Part A
Read the case very carefully and from the given information, calculate the following for
PEL Company:
a) Total explicit cost
b) Total implicit cost
c) Business profit
d) Economic profit
Part B
In that hypothetical study, the following regression function was estimated for PEL
Refrigerators:
QR = 690 - 0.2PR + 0.7N + 0.4Y + 0.8PW
Where,
QR = Sales of PEL Refrigerators
PR = Price of PEL Refrigerators
N = Number of consumers in the market
Y = Consumers’ income
PW = Price of Waves Refrigerators (a substitute product)
Suppose in year 2012, PR = Rs.53,000, N = 250, Y = Rs.45,000, PW = Rs.51,000 then
calculate:
a) Total sales of PEL Refrigerators
b) Price elasticity of demand for PEL Refrigerators
c) Income elasticity of demand for PEL Refrigerators
d) Cross price elasticity of demand for PEL Refrigerators with respect to Waves
Refrigerators
Outcomes of the study:
Pak Elektron Limited (PEL) as the pioneer manufacturer of electrical goods in Pakistan was established in 1956 in technical collaboration with M/s AEG of Germany. Later on, it was taken over by Saigol Group of Companies in October 1978. Since its inception, the company has always been contributing towards the advancement and development of the engineering sector in Pakistan by introducing a range of quality electrical equipments and home appliances. Appliances division of PEL consists of appliances manufacturing like Air Conditioners, Refrigerators, Deep Freezers etc. Power division of PEL is one of the major electrical equipment suppliers to Water and Power Development Authority (WAPDA) and Karachi Electrical Supply Corporation (KESC), which are the largest power utilities in Pakistan. A hypothetical study was conducted on PEL in year 2012 which revealed that annually, on average, the company receives Rs.59,35,680 from
selling its products while spends, Rs.12,55,000 in wages of its employees and on producing hundreds of engineers, skilled workers and technicians through its apprenticeship schemes and training programmes, Rs.6,45,000 in payments of rented buildings, and Rs.5,62,000 in interest payments on bank loans taken for production process. The study also found the fact that if PEL’s manager would work for some other renowned, emerging local and multinational electronics company, he could earn at most
Rs.22,18,000 per year.
Requirement:
Part A
Read the case very carefully and from the given information, calculate the following for
PEL Company:
a) Total explicit cost
b) Total implicit cost
c) Business profit
d) Economic profit
Part B
In that hypothetical study, the following regression function was estimated for PEL
Refrigerators:
QR = 690 - 0.2PR + 0.7N + 0.4Y + 0.8PW
Where,
QR = Sales of PEL Refrigerators
PR = Price of PEL Refrigerators
N = Number of consumers in the market
Y = Consumers’ income
PW = Price of Waves Refrigerators (a substitute product)
Suppose in year 2012, PR = Rs.53,000, N = 250, Y = Rs.45,000, PW = Rs.51,000 then
calculate:
a) Total sales of PEL Refrigerators
b) Price elasticity of demand for PEL Refrigerators
c) Income elasticity of demand for PEL Refrigerators
d) Cross price elasticity of demand for PEL Refrigerators with respect to Waves
Refrigerators
Outcomes of the study:
After solving this assignment, student will be able to:
- Distinguish between explicit and implicit costs and how to calculate these costs
- Distinguish between business and economic profits and how to calculate these profits
- Know what the regression function is and how to estimate different types of elasticities from the given regression function
Marking Scheme: (Part A: 2+2+2+2), (Part B: 3+3+3+3)
IMPORTANT NOTE:
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REFERENCING GUIDELINES:
- Use APA style for referencing and citation. For guidance search “APA reference style” in Google and read various website containing information for better understanding or visit http://linguistics.byu.edu/faculty/henrichsenl/apa/APA01.html
RULES FOR MARKING:
Please note that your assignment will not be graded or graded as Zero (0), if:
Please note that your assignment will not be graded or graded as Zero (0), if:
- It is submitted after the due date.
- The file you uploaded does not open or is corrupt.
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Best of Luck
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