Managerial Economic Past Questions

CONFIDENTIAL BM/APR 2007/ECO555/550/510
UNIVERSITI TEKNOLOGI MARA
FINAL EXAMINATION
COURSE
COURSE CODE
EXAMINATION
TIME
: MANAGERIAL ECONOMICS
: ECO555/550/510
: APRIL 2007
: 3 HOURS
INSTRUCTIONS TO CANDIDATES
1. This question paper consists of two (2) parts : PART A (6 Questions)
PART B (3 Questions)
2. Answer five (5) questions from PART A and ALL questions from PART B in the Answer
Booklet. Start each answer on a new page.
3. Do not bring any material into the examination room unless permission is given by the
invigilator.
4. Please check to make sure that this examination pack consists of:
i) the Question Paper
ii) an Answer Booklet - provided by the Faculty
DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO
This examination paper consists of 7 printed pages
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CONFIDENTIAL 2 BM/APR 2007/ECO555/550/510
PART A
QUESTION 1
a) Define the scope of managerial economics.
(4 marks)
b) Explain briefly any two objectives of firm other than profit-maximization.
(4 marks)
QUESTION 2
The demand curve function of a good is given by
Q = 12.5 -0.125P
where
Q denotes units of output
P denotes price
and the total cost function is
TC = Q3 - 10Q2 + 85Q + 10
a) Find the level of output which maximizes total revenue (TR). Prove that the TR is at
the maximum point.
(3 marks)
b) Find the level of output which maximizes profit. How much is the maximum profit?
(3 marks)
c) When profit is maximized, what is the value of marginal revenue and marginal cost?
(2 marks)
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QUESTION 3
A firm's short run production function is given by
Q = 6L2 - 0.2 L3
where
L denotes the number of workers
Q denotes units of output
a) Find the maximum short run output that can be produced by this firm.
(3 marks)
b) Find the number of workers that maximizes the average product of labour (APL).
Calculate the marginal product of labour (MPL) and APL at this value of labour. What
do you observed?
(5 marks)
QUESTION 4
SAS Company employs machines (K) and workers (L) to produce dolls. The production
function is given by
Q = 3K0 5L0 5
The price of a unit of worker and a unit of machine are RM2 and RM4 respectively and the
company's cost limitation is equal to RM1000 per time period.
a) Construct the constraint and the Lagrangian functions.
(2 marks)
b) Find the quantities of K and L that will maximize output (Q).
(4 marks)
c) Find the value of Lagrangian multiplier and interpret it.
(2 marks)
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QUESTION 5
Zuliana is currently working as an accounts executive and earning a salary of RM3.200 per
month. She is thinking of quitting her job to set up her own chicken rice outlet. The capital
required to set up the chicken rice outlet is estimated to be RM150,000. Zuliana intends to
borrow RM100,000 from the bank at an interest rate of 12% per annum and to withdraw
RM50.000 from her savings account which is currently paying an interest rate of 3% per
annum. The estimates for the monthly expenses for the chicken rice outlet are as follows:
Rental RM8.000
Employees'salaries RM15,000
Cost of supplies RM36,000
Miscellaneous expenses RM1,600
Zuliana estimates that she would be able to get an annual total revenue of RM800.000 from
the chicken rice outlet.
a) How much is the annual accounting profit?
(3 marks)
b) How much is the annual economics profit?
(3 marks)
c) A firm earning zero economic profits can have positive accounting profits. Do you
agree? Why?
(2 marks)
QUESTION 6
An oligopolistic firm has estimated that if other firms in the industry are indifferent to changes
in the price of its product, its demand curve will be:
Qi = 230 - 10P!
However if other firms always charge the same price as it does, the firm's demand curve will
be:
Q2 = 50 - 2P2
a) Determine the price and output at the kink.
(2 marks)
b) If the optimal price and output occurs at the kink, within what range can marginal cost
shifts without causing it to change its optimal price and output?
(4 marks)
c) If the firm's marginal cost is RM18, what would be the profit maximizing price and
output?
(2 marks)
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PARTB
QUESTION 1
The A & Z Drive-ln has determined that the demand for its burgers is given by the following
equation:
Q = 205.2 + 0.23A - 200P + 100 Pc + 0.05 Y
(1.85) (2.64) (-5.61) (2.02) (4.25)
(The t statistics for each variable is shown in parentheses),
where
Q is the number of burgers sold per month (in thousand)
A is the advertising expenditures during the previous month
P is the price of A & Z burgers (RM)
Pc is the price of burgers of a major competitor (RM)
Y is income per capita in the Shah Alam community
R2 = 0.88
SEE = 20
a) Are the signs of the individual coefficients consistent with the economic theory?
Explain.
(4 marks)
b) Which of the variables are statistically significant at the 5 percent level?
(2 marks)
c) If A = RM5,000, P = RM1, Pc= RM1.20, and Y = RM4.500, how many burgers will be
demanded?
(2 marks)
d) Calculate and interpret:
i) price elasticity of demand
ii) income elasticity of demand
iii) cross elasticity of demand
iv) advertising elasticity
(6 marks)
e) Derive the demand curve and marginal revenue curve functions.
(2 marks)
f) Determine the output and price that will maximize total revenue.
(2 marks)
g) At the revenue maximizing price, estimate the range of quantity demanded that can
be expected at 95% confidence level.
(2 marks)
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QUESTION 2
a) Distinguish between short-run and long-run production and what are the laws that
govern the short-run and the long-run production?
(5 marks)
b) Given the following production function of Syarikat Jensen:
Q = 50K06L05
Q refers to units of output, K is units of capital and L is units of labour.
Syarikat Jensen currently employs 20 units of capital at a cost of RM75 per unit and
25 units of labour at a cost of RM50 per unit.
i) Based on the current inputs used, compute the level of output and average
cost.
(3 marks)
ii) Calculate the marginal product of capital and marginal product of labour
based on the current inputs used.
(4 marks)
iii) Given the current inputs usage, is Jensen operating efficiently? Why?
(2 marks)
iv) Derive the expansion path equation.
(2 marks)
v) If Syarikat Jensen wants to produce 2,000 units of output, how many units of
capital and labour would you recommend that it should use if the firm wants to
minimize costs?
(3 marks)
vi) What type of returns to scale is shown by this production function? Explain.
(1 mark)
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QUESTION 3
a) In monopoly and monopolistic competition, the demand curve of the firms are
downward sloping but their slopes are different. Explain why.
(5 marks)
b) Syarikat S & M is a monopolist and it supplies its product to two groups of customers,
Group S and Group M. The demand curve functions for the two groups are as
follows:
Groups : Qs = 250-2.5Ps
Group M : QM = 540 - 8PM
The total cost function (TC) of Syarikat S & M is as follows:
TC = 500 + 20Q
Where Q refers to Qs + QM
i) If Syarikat S & M practises third degree price discrimination, what are the
profit maximizing price and quantity in each of the markets?
(6 marks)
ii) Based on the profit maximizing price, which market has a more elastic
demand? Support your answer with calculations.
(3 marks)
b) Syarikat LKM operates in a perfectly competitive market and the market price of its
product is RM30 each. The following function is the total cost function of Syarikat
LKM.
TC= 15,000 + 5Q + 0.0025Q2
i) Determine the output level that will maximize Syarikat LKM's profit.
(2 marks)
ii) Compute the maximum profit.
(2 marks)
iii) Is it possible for Syarikat LKM to earn this type of profit in the long-run? Why?
(2 marks)
END OF QUESTION PAPER
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CONFIDENTIAL BM/OCT 2008/ECO556/555/550/510
UNIVERSITI TEKNOLOGI MARA
FINAL EXAMINATION
COURSE
COURSE CODE
EXAMINATION
TIME
MANAGERIAL ECONOMICS/ECONOMICS AND
STATISTIC SOCIAL
ECO556/555/550/510
OCTOBER 2008
3 HOURS
INSTRUCTIONS TO CANDIDATES
1. This question paper consists of two (2) parts: PART A (6 Questions)
PART B (3 Questions)
2. Answer five (5) questions from PART A and ALL questions from PART B in the Answer
Booklet. Start each answer on a new page.
3. Do not bring any material into the examination room unless permission is given by the
invigilator.
Please check to make sure that this examination pack consists of:
i) the Question Paper
ii) an Answer Booklet - provided by the Faculty
DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO
This examination paper consists of 8 printed pages
© Hak Cipta University Teknologi MARA CONFIDENTIAL
CONFIDENTIAL 2 BM/OCT 2008/ECO556/S55/550/510
PART A
QUESTION 1
There are only three manufacturers of Product X in the country and the demand functions
faced by each manufacturer for Product X are as follows:
Manufacturer 1: Pi = 800-0.75Qi
Manufacturer 2: P2 = 500 - 1.4Q2
Manufacturers: P3 = 600-0.4Q3
Where P = price of Product X and Q = quantity demanded for Product X
a) If the price of Product X is set by the government at RM200 per unit, calculate the
total revenue earned by Manufacturer 1.
(2 marks)
b) If Manufacturer 3 wants to sell 300 units of Product X, what should be the price
charged?
(1 Vz marks)
c) Calculate the revenue maximizing output for Manufacturer 2.
(2 marks)
d) Determine the market demand curve function for Product X
(21/4 marks)
QUESTION 2
The estimated market demand for Suny TV is given as:
Qs = 6216 - 4.6PS - 3.4PX
Where
Qs = quantity demanded for Suny TV
Ps = price of Suny TV (RM800)
Px = price of good X (RM400)
a) Calculate the price elasticity of demand for Suny TV.
(2 marks)
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b) Interpret the above price elasticity of demand for Suny TV. Give one (1) factor that
influence the price elasticity of demand.
(2 marks)
c) Calculate the cross price elasticity of demand.
(2 marks)
d) Define income elasticity of demand.
(2 marks)
QUESTION 3
Given the following short run production function (Q):
Q = 10L2-0.5L3
Where
Q = units of output
L = units of labour
a) Derive the functions for:
i) marginal product of labour (MPL)
(1 mark)
ii) average product of labour (APL)
(1 mark)
b) How many units of labour should the firm hire in order to maximize total product?
(1 14 marks)
c) Calculate the most efficient range of values for labour that the firm should hire.
(21/2 marks)
d) Sketch the marginal product and average product functions in a diagram. Show the
most efficient range of labour in the diagram.
(2 marks)
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QUESTION 4
a) Given the following total cost function:
TC = 600 + 400Q - 48Q2 + 0.4Q3
i) What is the level of output where marginal cost is minimised?
(2 marks)
ii) At what output level does marginal cost intersect with average variable cost?
(2 marks)
b) Nordin has RM50.000 in his savings account. He is thinking of using this savings to
pursue a one-year MBA programme at a private college. The tuition fee for the
programme is RM10,000. He has to incur monthly costs of RM200 for
accommodation and meals. He also estimates that the total cost for books and other
supplies will be RM700 for the whole year.
He could have earned RM25,000 per year by getting a job instead of going to the
private college. Currently the banks' interest rate on savings account is 4%. Calculate
Nordin's explicit costs and implicit costs.
(4 marks)
QUESTION 5
The market supply (Qs) and demand curves (QD) for a product traded in a perfectly
competitive market are given below:
Qs = 80 + 30P
QD = 280 - 20P
a) Calculate the market equilibrium price in the industry.
(1 mark)
b) If a firm's total cost function is given as:
TC = 10 + 4Q + 3Q2-0.2Q3
what is the profit-maximizing price and quantity for this firm?
(3 marks)
c) How much is the total maximum profit for the firm? State the type of profit earned by
the firm.
(2 marks)
d) Should the firm shut down or continue operation? Justify your answer.
(2 marks)
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QUESTION 6
Goldie & Co. a company that produces two types of burgers: chicken burger (C) and beef
burger (B). The average cost (AC) function is:
AC = 5C2 - 6CB - 3C + 8B2 - 2B - 120
a) Goldie & Co. expects the total order for both the chicken and beef burgers to be 10
boxes. Using the Lagrangian technique, determine the number of boxes of beef
burger and chicken burger that the company has to produce in order to minimize the
average cost.
(6 marks)
b) Calculate the minimum average cost.
(2 marks)
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PARTB
QUESTION 1
The estimated demand function below is for Brand T shoes:
QT = 30205 - 50.4PT + 34.8PZ - 13.6Y + 0.4A
(-2.6) (3.9) (-2.98) (1.9)
Where
QT = quantity demanded of Brand T shoes
PT = price of Brand T shoes
Pz = price of competitor's Brand Z shoes
Y = consumers income
A = advertisement expenditure
Assume that PT = RM90 per pair, Pz = RM130 per pair, Y = RM2100, A = RM1200
Coefficient of determination (R2) = 0.76
Standard error of estimation = 62.56
The values in parentheses are the t-statistics for each coefficient.
(The critical t-value at 95% confidence interval is 1.96)
Based on the above regression results:
a) Derive the demand and marginal revenue curve functions of Brand T shoes.
(3 marks)
b) Calculate the income elasticity of demand for Brand T shoes. Interpret your answer.
(3 marks)
c) Do you think that an increase in the advertisement expenditure is advisable to the
seller? Why?
(2 marks)
d) What should be the price charged for Brand T shoes if the producer wants to
maximize total revenue?
(2 marks)
e) At the total revenue-maximizing price, what range of quantity output would you
expect at 95% confidence interval?
(2 marks)
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f) What would be the effect on quantity demanded for Brand T shoes if the price of
Brand Z increases by 20%? (Answer in percent)
(3 marks)
g) What is the range of price where demand for Brand T shoes is elastic?
(2 marks)
h) Identify the variables that are statistically significant at 95% confidence interval.
(2 marks)
i) Interpret the coefficient of determination (R2).
(1 mark)
QUESTION 2
a) The production function of Dahlia Bakery is given as:
Q = 6.5L06K08
Where
Q = quantity of bread
L = labour input
K = capital input
The price of labour is RM20 per person and capital is RM18 per unit. Currently it
employs 25 units of labour and 15 units of capital.
i) How much is the total cost incurred by Dahlia Bakery based on the current
inputs used?
(1 !4 marks)
ii) Determine the current output level of Dahlia Bakery.
(1 V* marks)
iii) Derive the expansion path equation for Dahlia Bakery.
(4 marks)
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iv) What should be the optimal combination of labour and capital to produce the
current output level?
(4 marks)
v) Show that the average cost using the optimal input mix is lower as compared
to the current input mix.
(3 marks)
b) Define 'economies of scale' and 'diseconomies of scale'. How do they influence the
shape of the long-run average cost curve?
(6 marks)
QUESTION 3
a) Krunchmore Co. is a keropok manufacturer selling its product in 2 countries;
Malaysia and Thailand. The demand functions for the two markets are:
Malaysia: QM = 200 - 4PM
Thailand: QT = 100 - PT
The total cost function is: TC = 150 + 5Q
Advise whether Krunchmore Co. should practice price discrimination or should it
charge a uniform price, in order to get maximum profit (show your working).
(12 marks)
b) The market demand curve for a product sold by a seller is given as Q = 120 - 4P and
its total cost function is TC = 300 + 1.5Q2
i) What is the type of market structure for this seller? Give your reason.
(2 marks)
ii) Calculate the price and quantity that maximizes its profit.
(3 marks)
iii) Calculate and define the type of profit earned?
(3 marks)
END OF QUESTION PAPER
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CONFIDENTIAL BM/APR 2009/ECO556/555
UNIVERSITI TEKNOLOGI MARA
FINAL EXAMINATION
COURSE
COURSE CODE
EXAMINATION
TIME
MANAGERIAL ECONOMICS
EC0556/555
APRIL 2009
3 HOURS
INSTRUCTIONS TO CANDIDATES
1. This question paper consists of two(2) parts: PART A (6 Questions)
PART B (3 Questions)
Answer five (5) questions from PART A and ALL questions from PART B in the Answer
Booklet. Start each answer on a new page.
Do not bring any material into the examination room unless permission is given by the
invigilator.
Please check to make sure that this examination pack consists of:
i) the Question Paper
ii) an Answer Booklet - provided by the Faculty
DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO
This examination paper consists of 7 printed pages.
© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL
CONFIDENTIAL 2 BM/APR 2009/ECO556/S55
PART A
QUESTION 1
a) Briefly explain the scope of Managerial Economics.
(3 marks)
b) Given the following equation:
TR = 258Q - Q2
Using the above equation, explain the concept of optimization using the 1s t and 2nd
derivatives.
(5 marks)
QUESTION 2
A study conducted by the management of Syarikat Unique Bhd. derived the following profit
function for its two products: Product M and Product B
TT = 100M + 80B - MB - 3M2 - 2B2
Syarikat Unique faces the constraint on production whereby the output of Product M and
Product B must be 12 units.
a) Using the Lagrangian multiplier technique, determine the number of units of Product
M and Product B that should be produced by Syarikat Unique if its objective is to
maximise profits.
(6 marks)
b) If the constraint on the output of these two products is increased to 13 units, what is
the impact on profits?
(2 marks)
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QUESTION 3
Syarikat Chocoda operates a bakery specialising in chocolate cakes. Below is the monthly
demand and cost functions for Chocoda's one kilogram chocolate cake:
P = 35 - 0.005Q
TC = 5,000 + 2Q + 0.0005Q2
a) Derive the following functions:
i) marginal revenue
ii) marginal cost
(2 marks)
b) Determine the total revenue maximizing price and output.
(3 marks)
c) Determine the profit maximizing price and output.
(3 marks)
QUESTION 4
Zarinah is currently working as a marketing executive earning a monthly salary of RM3,000.
She is rather unhappy with her job and is thinking of quitting. Her plan is to start her own
cafe. The estimated capital required is RM100,000. Zarinah is able to withdraw RM20,000
from her savings account which pays an interest of 3 percent per annum. The balance of the
capital would be financed by a bank loan. Interest on the bank loan is 10 percent per annum.
The monthly expenses for the cafe are estimated to be as follows:
Rental RM5,000
Employees'wages RM18,000
Cost of supplies RM42,000
Miscellaneous expenses RM2.500
The annual total revenue is estimated to be RM850.000.
a) Explain to Zarinah the meaning of:
i) explicit costs
ii) implicit costs
(2 marks)
b) Calculate the annual accounting profit.
(3 marks)
c) Calculate the annual economic profit. Should Zarinah start the cafe? Why?
(3 marks)
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QUESTION 5
Syarikat Zikon faces the following segmented demand curves:
Pi = 27 - 0.9Q! for price increase
P2 = 30-1.2Q2 for price decrease
The total cost function is:
TC = 15 + 2.5Q + 0.2Q2
a) Determine the price and output at the kink.
(1 mark)
b) Calculate the value for:
i) upper limit of marginal revenue (MF^)
ii) lower limit of marginal revenue (MR2)
(3 marks)
c) Determine the profit maximizing output and price for Syarikat Zikon.
(2 marks)
d) If the total cost function is given as TC = 15 + 3.5Q + 0.3Q2, what would be the
profit maximizing output and price?
(2 marks)
QUESTION 6
a) Explain why knowledge of price elasticity of demand is important to a manager in its
pricing strategy decision.
(2 marks)
b) Product K has a price elasticity of demand of - 0.6 while Product G has a price
elasticity of demand of - 1.8.
i) Explain why the price elasticity of demand for Product K and G are both
negative.
(1 mark)
ii) Which Product has a more elastic demand? Why?
(2 marks)
iii) Give two (2) factors that can explain the difference in the price elasticity of
demand for Product K and Product G.
(3 marks)
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PARTB
QUESTION 1
Syarikat Zetsteel Sdn Bhd., a manufacturer of stainless steel kettle, has derived the following
regression function for its kettle:
QK = 2350 - 50.6PK + 11.5PC + 0.38Y + 0.02A
(770) (15.9) (52.8) (0.06) (0.007)
Where Q« = quantity demanded for Zetsteel's kettle
PK = price of Zetsteel's kettle = RM60
Pc = price of its competitor's kettle = RM58
Y = household's income = RM8.000
A = advertising expenses = RM50.000
Standard errors in parentheses
Coefficient of determination = 0.956
Standard error of estimation = 50
Critical t-value at 95% confidence interval is 1.96
a) Derive the demand curve function for Syarikat Zetsteel. (2 marks)
b) If Zetsteel reduces its advertising expenses by 5%, what is the impact on quantity
demanded for its kettle? (Answer in percent)
(3 marks)
c) Calculate the income elasticity of demand for Zetsteel's kettle.
Based on your answer, if Zetsteel anticipates an economic slowdown in the coming
year, would you advise Zetsteel to maintain the same units of production? Why?
(3 marks)
d) The finance manager of Zetsteel has recommended to the marketing manager to
increase the price of kettle to RM65 so that the firm can increase its revenue. Do you
think that this recommendation should be carried out? Support your answer with
numerical calculations.
(3 marks)
e) Does the regression function have strong explanatory power? Explain. (2 marks)
f) Based on 95% confidence interval, identify the independent variables that have
significant effect on the demand for Zetsteel's kettle.
(2 marks)
g) The marginal cost of the kettle is RM28. Is the price of RM60 considered the profit
maximising price of the kettle? Support your answer with calculations.
(3 marks)
h) At the profit maximising price, what range of quantity would you expect at 95%
confidence interval?
(2 marks)
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QUESTION 2
a) The short-run production function of Syarikat Jetson is as follows:
Q = 9L2 - 0.25L3
Where Q = level of output per time period
L = units of labour employed
i) How many units of labour should be employed if Jetson wants to maximize
short-run output?
(2 marks)
ii) Calculate the maximum short-run output.
(1 mark)
iii) At what level of output would Jetson reach the point of diminishing marginal
returns to labour?
(2 marks)
iv) State the law of Diminishing Marginal Returns. Why is this law applicable only
in short-run production?
(3 marks)
b) Syarikat ZMT which produces staplers has estimated its production function to be as
follows:
Q = 120K05L05
Where Q = units of output
K = capital input
L = labour input
ZMT currently employs 25 units of capital and 64 units of labour.
The price of capital is RM80 per unit while the price of labour is RM50 per unit.
i) Calculate the current output level and the average cost at this output level.
(3 marks)
ii) Derive the expansion path equation.
(3 marks)
iii) If ZMT wants to produce 5,000 units of output, how many units of labour and
capital should be employed in order to achieve an optimal combination?
(3 marks)
iv) Define isoquant and isocost.
(3 marks)
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QUESTION 3
a) Give any two (2) characteristics of monopolistic competitive market and explain why
firms in monopolistic competition earn only normal profits in the long-run.
(4 marks)
b) Syarikat Saza sells its product in two different markets: Market A and Market B.
The demand functions for the two markets are:
Market A: QA = 16 - 0.4PA
Market B: QB = 9 - 0.1 PB
QA and QB are quantities demanded in Market A and Market B respectively.
PA and PB are prices charged in Market A and Market B respectively.
Syarikat Saza's total cost function is: TC = 120 + 10Q
Where Q = QA + QB
i) If Saza wants to practise third degree price discrimination, what should be the
profit maximizing price charged in:
i) Market A?
ii) Market B?
Calculate the total profits earned.
(6 marks)
ii) Based on your answer in (a), which market has a more elastic demand?
Provide numerical calculations to support your answer.
(3 marks)
iii) Assuming that Saza wants to charge the same price for its product in both
markets, what would be the profit maximizing price?
Calculate the total profits earned.
(4 marks)
c) A firm in a perfectly competitive market has the following long-run total cost function:
TC = 90Q - 3.6Q2 + 0.06Q3
What is the long-run price for the firm's product?
(3 marks)
END OF QUESTION PAPER
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CONFIDENTIAL BM/OCT 2009/ECO556/555/550
UNIVERSITI TEKNOLOGI MARA
FINAL EXAMINATION
COURSE
COURSE CODE
EXAMINATION
TIME
MANAGERIAL ECONOMICS
ECO556/555/550
OCTOBER 2009
3 HOURS
INSTRUCTIONS TO CANDIDATES
1. This question paper consists of two (2) parts : PART A (6 Questions)
PART B (3 Questions)
2. Answer five (5) questions from PART A and ALL questions from PART B in the Answer
Booklet. Start each answer on a new page.
3. Do not bring any material into the examination room unless permission is given by the
invigilator.
4. Please check to make sure that this examination pack consists of:
i) the Question Paper
ii) an Answer Booklet - provided by the Faculty
DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO
This examination paper consists of 7 printed pages
© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL
CONFIDENTIAL 2 BM/OCT 2009/ECO556/555/550
PART A
QUESTION 1
a) Define managerial economics.
(4 marks)
b) By using examples, differentiate between implicit costs and explicit costs.
(4 marks)
QUESTION 2
A firm producing "Flash" printers has the following demand function.
Q = 315- 5.5P + 8A + 6.4PC + 10.2M
Where
Q = Quantity demanded for "Flash" printers in units,
P = Price of "Flash" printers in RM per unit
A = Advertising expenditure, in thousands of RM
Pc = Price of competitor's product in RM per unit
M = Average yearly income in thousands of RM
Given that P = 340, A = 30, Pc = 420 and M = 25.
a) Based on the information above, calculate the quantity demanded for "Flash"
printers.
(2 marks)
b) Would you categorize "Flash" printers as inferior, necessity or luxury good?
(2 marks)
c) Should the firm increase, decrease or maintain the price of "Flash" printers to
maximise total revenue?
(2 marks)
d) What is the impact on quantity demanded for "Flash" printers if its competitor
increases price by 3%?
(2 marks)
© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL
CONFIDENTIAL 3 BM/OCT 2009/ECO556/555/550
QUESTION 3
Super Hotdog, a local hotdog outlet is currently employing workers for its new outlet. Its
production function is estimated as
Q = 11.2L - 0.25L2
Where
Q = number of hotdog sold,
L = the number of labour hours used.
a) If a hotdog is sold at an average price of RM3.50 and labour is paid RM6 an hour,
how many labour hours should the new outlet use?
(3 marks)
b) If Super Hotdog outlet faces a total cost function of
TC = 100 +0.2Q + 0.01Q2
Calculate the profit earned by the outlet if it uses the optimum number of labour
hours as in part (a) above.
(4 marks)
c) Is this a short run or long run analysis? Explain briefly.
(1 mark)
QUESTION 4
A firm has estimated the total cost function for its product M as follows
TC = 2500 + 150Q - 3Q2 + 0.5Q3
a) Derive the following functions:
i) average fixed cost (AFC)
(1 mark)
ii) average variable cost (AVC)
(1 mark)
iii) average total cost (ATC)
(1 mark)
iv) marginal cost (MC).
(1 mark)
b) If this firm is operating under perfectly competitive market, what is the shut-down
price for the firm?
(4 marks)
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QUESTION 5
The planning department of Cybertronics has estimated that if other firms in the industry are
indifferent to changes in its price, its demand curve will be Qi = 700-50Pi However, if other
firms react to the changes, its demand curve will be Q2 = 200-10P2.
a) Determine the output and price at the kink.
(2 marks)
b) Within what range can marginal cost shift without causing it to change its price and
output?
(2 marks)
c) Compute the profit-maximising output and price if marginal cost equals
i) RM11.50
ii) RM4.50
(4 marks)
QUESTION 6
Chong Company has determined through regression analysis that its sales (S) are a function
of the amount of advertising (measured in units) in two different media. These are given by
the following relationship (X and Y represent TV and magazines advertising respectively):
S = 100X + 50Y - 5X2 - 10Y2 + 10XY
Suppose that the total advertising budget is restricted to 10 units.
a) Using the Lagrangian technique, determine the combination of TV and magazine
advertising that maximises sales.
(6 marks)
b) Compute and interpret the value of the Lagrangian multiplier.
(2 marks)
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PARTB
QUESTION 1
Sunman Inc., an electronic firm conducted a study for its new digital camera "Sharp Eye"
using the following model.
Q = b0 + biPs + b2Ad + b3Pc + b4Yd
Where
Q = Quantity demanded of "Sharp Eye" in units
Ps = Price of "Sharp Eye" in RM per unit
Ad = Advertising expenditure, in thousands of RM
Pc = Price of competitor's product in RM per unit
Yd = Average monthly income in thousands of RM
The results of the computer analysis are shown in the following table:
Variable
Intercept
Ps
Ad
Pc
Yd
Coefficient
250
-2.5
7.0
5.0
3.5
Standard Error
120
0.8
1.3
3.4
1.6
Given,
Ps= 1320
Ad = 54
Pc = 1400
Yd = 4
R2 = 0.93
S.E. of regression = 210
a) Write the estimated demand function and derive an expression for the firm's
conventional demand curve for the new digital camera! "Sharp Eye".
(3 marks)
b) If the firm's objective is to maximise total revenue from the sales of "Sharp Eye", what
price should the firm charge?
(4 marks)
c) Which of the coefficients above are statistically significant at the 5% significance level
given the critical value, 10.05,24 = 2.064?
(5 marks)
© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL
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d) Explain the coefficient of determination (R2).
(2 marks)
e) At the total revenue maximising price, calculate the range in which the quantity
demanded for digital camera "Sharp Eye" will be expected to fall at 5% significance
level given the critical value, t o.os, 24 = 2.064
(4 marks)
f) Based on the findings above, would you accept the regression? Explain.
(2 marks)
QUESTION 2
The production function for a paint manufacturing firm, Sunshield Sdn Bhd., was estimated
as follows:
Q = 40 K°8 L°6
Where
Q = output per period
K = capital input per period
L = labour input per period
The firm is currently using 25 units of capital and 40 units of labour. The price of capital is
RM22 per unit and the price of labour is RM30 per unit.
a) Calculate the total output level and average cost of production at the current inputs
used.
(4 marks)
b) Can the firm produce the same output at a lower total cost? Show your working.
(4 marks)
c) Determine the expansion path for this production function.
(4 marks)
d) What should be the combination of labour and capital in order to produce the current
output efficiently?
(4 marks)
e) What will be the percentage change in output when K increases by 5% while L falls
by 10%?
(2 marks)
f) Determine the returns to scale for the above production function.
(2 marks)
© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL
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QUESTION 3
Mukmin Book Store sells books to two main groups of buyers, namely students and
lecturers. The demand functions for Mukmin's books by students (Market 1) and lecturers
(Market 2) are, respectively
Qi=140-10Pi and Q2=160-20P2
Where
Qi = quantity of books sold to students per day (units)
Pi = price per unit (in RM) paid by students
Q2 = quantity of books sold to lecturers per day (units)
P2 = price per unit (in RM) paid by lecturers
The firm's total cost (in RM) is given by
TC = 4Q
a) Assume Mukmin wants to discriminate price
i) What quantity should be sold in each market?
ii) What price should be charged in each market?
iii) Calculate the total profit with price discrimination.
(6 marks)
(2 marks)
(3 marks)
b) If Mukmin wants to charge a uniform price, calculate the profit maximising price and
quantity.
(6 marks)
c) Should Mukmin practice price discrimination? Why?
(3 marks)
END OF QUESTION PAPER
© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL



CONFIDENTIAL BM/APR 2010/ECO556/555/550
UNIVERSITI TEKNOLOGI MARA
FINAL EXAMINATION
COURSE
COURSE CODE
EXAMINATION
TIME
MANAGERIAL ECONOMICS
ECO556/555/550
APRIL 2010
3 HOURS
INSTRUCTIONS TO CANDIDATES
1. This question paper consists of two (2) parts : PART A (6 Questions)
PART B (3 Questions)
2, Answer five (5) questions from PART A and ALL questions from PART B in the Answer
Booklet. Start each answer on a new page.
3.
4.
Do not bring any material into the examination room unless permission is given by the
invigilator.
Please check to make sure that this examination pack consists of:
i) the Question Paper
ii) an Answer Booklet - provided by the Faculty
DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO
This examination paper consists of 8 printed pages
© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL
CONFIDENTIAL 2 BM/APR 2010/ECO556/555/550
PART A
QUESTION 1
The information below shows the price elasticity of demand (ep), cross price elasticity of
demand (exy) and income elasticity of demand (ey) for MYTV cable television.
ep
exy
ey
-0.85
1.20
1.60
Analyze the following statement and explain your answer.
a) MYTV cable television is a luxury good. Do you agree?
(2 marks)
b) What is the impact of a 15% increase in income on the demand for MYTV cable
television?
(2 marks)
c) Reducing the price of MYTV cable television will increase total revenue. Do you
agree?
(2 marks)
d) When the price of competitor decreases by 10%, what is the percentage change in
the demand for MYTV cable television?
(2 marks)
QUESTION 2
Media Services, Inc., is a centralized processor of promotional coupons for firms in the food
products industries. A key aspect of Media's operation is its sophisticated records division,
which monitors promotional and sales data in order to highlight effective promotions and limit
coupon fraud. A production function for coupons in the records division has been estimated
as fo|lows:
Q = -60 + 140L + 100K - 10L2 - 8K2 - 6LK
where Q = coupons processed (in units)
L = computer staff input (in labor-week)
K = minicomputer time input (in machine-week)
Furthermore, computer staff (L) earns an average income of RM20 per week, while the
average rental for the machine (K) (including software and service costs) is RM40 per week.
© HakCipta Universiti Teknologi MARA CONFIDENTIAL
CONFIDENTIAL 3 BM/APR 2010/ECO556/55S/550
a) Derive the constraint function if the total expenses is limited to RM200 per week.
(1 mark)
b) Formulate the Lagrangian function and determine the optimal levels for L and K.
(5 marks)
c) Calculate and interpret the Lagrangian multiplier.
(2 marks)
QUESTION 3
Suppose the microchip producer faces total cost equation given by:
TC = 1000 + 200Q - 9Q2 + 0.25Q3
Determine:
a) The equation for average fixed cost, average variable cost, average total cost and
marginal cost.
(2 marks)
b) At what output level will the average variable cost be minimum?
(2 marks)
c) What is the minimum price the firm should charge before it considers shutting down?
(2 marks)
d) Explain why a firm will continue operation even though it incurs losses.
(2 marks)
QUESTION 4
The equation below represents a short run production function for Company XYZ.
Q = 2 L + 0.5L * - 0.025L 3
Where Q = the number of output produced
L = the number of labor units employed.
a) Derive the function for average product of labor and marginal product of labor.
(2 marks)
b) At which unit of labor (L), does marginal returns begin to diminish?
(2 marks)
© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL
CONFIDENTIAL 4 BM/APR 2010/ECO556/555/550
c) If the product is sold at RM20 per unit and the wage rate is RM40 per unit of
labor, how many units of labor should be employed in order to maximize the
firm's profit ?
(2 marks)
d) Is this production function showing decreasing, constant, or increasing returns
to scale?
(2 marks)
QUESTION 5
a) Johan, an architect, works for a large firm and is currently earning RM90.000 per
year. He is planning to quit his job and set up his own firm. He estimates that the
monthly cost to operate his business is as follows:
Rent RM800
Utilities RM250
Employees' salaries RM7.000
He also estimates that his total revenue for the year would be RM230,000. He will
withdraw RM50.000 from his savings which earns 5% per annum.
i) Calculate Johan's annual explicit and implicit cost for running his firm.
(2 marks)
ii) Explain briefly whether Johan should start his business or not.
(3 marks)
b) Discuss any two (2) possible constraints that might be faced by Johan if he operates
his own firm.
(3 marks)
© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL
CONFIDENTIAL 5 BM/APR 2010/ECO556/555/550
QUESTION 6
The market price in a perfectly competitive industry is P = RM10.
Suppose that the total cost function of an individual firm in the industry is given by :
TC = 100 + 5Q + 0.02 Q2
a) Briefly explain any two (2) characteristics of this market structure.
(2 marks)
b) At what price and output would the firm maximize its profit?
(2 marks)
c) What is the firm's total profit at the profit-maximizing price?
(2 marks)
d) Based on your answer above, sketch a diagram and explain whether the firm is in
short-run or long-run equilibrium.
(2 marks)
© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL
CONFIDENTIAL 6 BM/APR 2010/EC0556/555/550
PARTB
QUESTION 1
Colourful Tile, Inc., is a rapidly growing chain of ceramic tile outlets that caters to the do-ityourself
home remodeling market. In 2008, 30 stores were operated in small to medium-size
metropolitan markets. An in-house study of sales by these outlets revealed the following
function:
QX = 5 - 5Px + 1.5A + 0.5Y + 0.2Pz
(3) (1.8) (0.7) (0.2) (0.1)
R2 = 0.85
Figures in the parentheses show the standard errors of coefficients.
Standard Error of Estimate = 6
Here,
Qx = tile sales (in thousands cases)
Px = tile price (per case) = RM5
A = advertising expenditure (in thousands of RM) = RM30
Y = disposable income per capita (in thousands of RM) = RM40
Pz = price of a competitor's tile (per case) = RM5
a) Briefly interpret each coefficient. Are the signs of the coefficient of each independent
variable consistent with economic theory?
(4 marks)
b) Calculate the t-value for each of the independent variable. Comment on the results
given the critical t-value at 95% confidence interval is 2.042.
(2 marks)
c) How many percent of the variations in Q cannot be explained by the independent
variables Px, A, Y and Pz? Give one reason to explain why.
(3 marks)
d) Derive the conventional demand curve function and calculate the estimated quantity
demanded for Colourful Tile, Inc.
(2 marks)
e) Is the quantity demanded sensitive to its own price? Explain.
(2 marks)
f) At the revenue maximizing price, what is the range of sales volume that can be
expected at the 95% confidence interval? (Given the critical t-value at 95%
confidence interval is 2.042).
(4 marks)
g) What impact would a 5% increase in income have on the demand for Colourful Tile?
(3 marks)
© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL
CONFIDENTIAL 7 BM/APR 2010/ECO556/555/550
QUESTION 2
A production function of Su's Company is given below:
Q=10K0 8L0 2
where Q = total output,
K = units of capital and
L = units of labour.
Su's Company currently employs 40 units of capital and 200 units of labour. The per unit
price of capital and labour are RM100 and RM10 respectively.
a) Based on the current inputs used, find the total cost and calculate the level of output
produced by Su's Company.
(4 marks)
b) Calculate the marginal product of capital and marginal product of labour based on the
current inputs used.
(4 marks)
c) Derive the equation for the expansion path.
(4 marks)
d) With the current input usage, is Su's Company operating efficiently?
(2 marks)
e) If the price of capital increases by 100%, will the current input mix be efficient?
Explain.
(4 marks)
f) If capital increases by 5% and labour decreases by 10%, what would be the
percentage change in output produced?
(2 marks)
© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL
CONFIDENTIAL 8 BM/APR 2010/ECO556/555/550
QUESTION 3
a) A monopoly firm has two separate markets for its cell phone batteries. The domestic
market is characterized by the demand curve PD = 100 - 2 QD and the
foreign market is characterized by the demand curve PF = 60 - 0.5QF where P
represents the price and Q represents thousands of units demanded. The firm's total
cost function is represented by:
TC = 30+ 20Q
where Q = QD + Q F
i) If the monopoly practices third degree price discrimination, calculate the profit
maximizing price and output in each of the market.
(4 marks)
ii) Calculate the total profits with price discrimination.
(3 marks)
iii) What is the profit maximizing price and quantity if the firm charges a uniform
price?
(3 marks)
iv) Should the firm practice price discrimination? Explain. Calculate the
differences in the profits.
(4 marks)
b) Explain 'price rigidity' in the oligopoly market. Give any two (2) products sold under
this market
(6 marks)
END OF QUESTION PAPER
© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL




CONFIDENTIAL BM/OCT 2010/ECO556/555/550
UNIVERSITI TEKNOLOGI MARA
FINAL EXAMINATION
COURSE
COURSE CODE
EXAMINATION
TIME
MANAGERIAL ECONOMICS
ECO556/555/550
OCTOBER 2010
3 HOURS
INSTRUCTIONS TO CANDIDATES
1. This question paper consists of two (2) parts : PART A (6 Questions)
PART B (3 Questions)
2. Answer five (5) questions from PART A and ALL questions from PART B. Answer PART A
and PART B in the Answer Booklet. Start each answer on the new page.
3. Do not bring any material into the examination room unless permission is given by the
invigilator.
4. Please check to make sure that this examination pack consists of:
i) the Question Paper
ii) an Answer Booklet - provided by the Faculty
DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO
This examination paper consists of 7 printed pages
© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL
CONFIDENTIAL 2 BM/OCT 2010/ECO556/555/550
PART A
QUESTION 1
Akmal has invested RM60,000 into Quick-Kleen, a franchised carpet-cleaning company.
The money was from a RM50,000 bank loan with an interest rate of 10% per annum and
RM10,000 of his own savings, which bears dividend of 8% per annum. He employs four
workers whom he pays RM10,000 per person per annum. He leases his equipment and
buys his supplies from Quick-Kleen, U.S.A. Inc., which cost around RM35.000 per annum.
He also has to bear the depreciation costs on the equipment, which is RM30.000 per year.
After a year in operation, his annual revenue is RM125,000. Prior to his current business,
Akmal was working as a manager in another company, which paid him RM15,000 per year.
a) Calculate Akmal's explicit costs of running his business
(2 marks)
b) Compute Akmal's implicit costs of running the business.
(2 marks)
c) Is Akmal financially better-off in his current business compared to his previous job?
(4 marks)
QUESTION 2
You are the manager of NRZ Deli. During the busy lunch hour, the amount of sandwiches
(Q) that can be made is determined by the number of workers (L). Suppose each worker is
paid RM6 per hour and sandwiches sell for RM4. From your observation, you have
estimated the following production function:
Q = 4L - 0.25L2
a) How many workers should you employ during the lunch hour to maximize profits?
(3 marks)
b) Compute the maximum profit at NRZ Deli during the lunch hour.
(3 marks)
c) Suppose that you want to maximize production. How many workers should you
employ during the lunch hour?
(2 marks)
© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL
CONFIDENTIAL 3 BM/OCT 2010/ECO556/555/550
QUESTION 3
A cruise ship line is deciding what size ship to build. Let Q denote the number of passengers
per ship. Then the long run average cost function of a ship is given by:
LRAC = 3000-100Q + Q2
The price of a cruise is RM1000.
a) Compute the ship size that minimizes long run average costs.
(2 marks)
b) Suppose that for engineering reasons, the firm can choose between a 20 passenger
ship and a 60 passenger ship. Which one should be built? Justify your answer.
(3 marks)
c) What economic law/principle does your answer in (b) illustrate?
(1 mark)
d) Calculate profit per passenger for both the 20 and 60 passenger ships.
(2 marks)
QUESTION 4
Given the following total cost function for Megah Tegoh:
TC = 1000 + 50Q-10Q2+Q3
a) Determine the functions for the average fixed cost, average variable cost and
marginal cost.
(3 marks)
b) Using calculation, show that when average variable cost is at the minimum, it is equal
to the marginal cost.
(3 marks)
c) Why are the short-run average cost curve and the long-run average cost curve "Ushaped"?
State the reasons.
(2 marks)
© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL
CONFIDENTIAL 4 BM/OCT2010/ECO556/555/550
QUESTION 5
The demand for a firm's product (Qx) is a function of the price of X (Px), the price of a
competitor's product (Py), income in the market area (Y), and the firm's advertising
expenditures (A). The function is
Qx = 500 - 10Px + 6Py + 300Y + 10A - 0.025A2
Given that Px = 380, Py = 50, Y = 10, and A = 200.
a) Write the demand curve equation for good X.
(2 marks)
b) Determine the quantity that will yield maximum total revenue and calculate the
maximum total revenue.
(3 marks)
c) Explain the relationship between total revenue, price elasticity of demand, and pricing
strategies.
(3 marks)
QUESTION 6
Suppose there are three buyers in the market with the following demand curve functions:
P1 = 20-0.1Q
P2 = 20 - 0.2Q
P3 = 35-0.2Q
The market supply is given as: 100+ 5P
a) Determine the market demand function.
(2 marks)
b) Determine the market equilibrium price and quantity.
(2 marks)
c) Suppose that the price is fixed at RM18 per unit. What will happen in the market?
(2 marks)
d) Let demand rise to Q = 700 - 15P. What are the new equilibrium price and quantity?
(2 marks)
© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL
CONFIDENTIAL 5 BM/OCT 2010/ECO556/555/550
PARTB
QUESTION 1
A Proton dealer has hired you to analyze automobile demand in 30 regional markets for
Proton Saga. A statistical analysis of demand in these markets is represented by:
QP= 2,000 - 10PP + 0.025Y+ 5PM + 0.0825A
(1000) (2.5) (0.02) (1.5) (0.025)
R squared = 0.96
F = 23.8
Standard error of estimate = 5
(Standard errors are given in parentheses)
where,
QP= quantity demanded per year of Proton Saga
PP = average price of Proton Saga automobiles in thousands, (RM40)
Y = household income in thousands, (RM 24)
PM = average price of Perodua Myvi in thousands, (RM45)
A = advertising expenditures per year in thousands, ( RM400)
a) Indicate the change in the number of Proton Saga purchased per year (QP) for each
unit change in the independent or explanatory variables.
(4 marks)
b) Based on 95% confidence level, identify the independent factors which can
significantly influence demand for Proton Saga (t25,a = o.o5= 2.06).
(4 marks)
c) Use the estimated demand function to calculate the expected value of Qp in a typical
market. Also calculate the 95% confidence interval within which you would expect to
find the actual value of sales (12s, a = o.os = 2.06).
(3 marks)
d) Calculate the point price elasticity of demand. Would a reduction in price result in a
fall in total revenue? Why or why not?
(3 marks)
e) Calculate the cross elasticity of demand. Are Poton Saga and Myvi complements or
substitutes? Explain.
(3 marks)
f) Calculate the income elasticity of demand for Proton Saga. Is Proton Saga a
necessity, inferior or luxury good? Why?
(3 marks)
© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL
CONFIDENTIAL 6 BNI/OCT 2010/ECO556/555/550
QUESTION 2
Malaysian SMEs produces durian chocolates for domestic market and foreign market. The
demand function for the domestic market is:
QD = 6,000 - 20PD
where,
QD = annual quantity demanded from the domestic market
PD = price in the domestic market.
The demand function for the foreign market is:
QF = 12,000-80PF
where,
QF = annual quantity demanded from the foreign market
PF = price in the foreign market.
The total cost function for Malaysian SMEs is:
TC = 20,000+ 10Q
where,
Q = QD + QF
a) Formulate Malaysian SMEs' profit function in terms of QD and QF.
(4 marks)
b) Determine the profit-maximising quantity and price of durian chocolates for each
market.
(6 marks)
c) Calculate the profit for each market based on profit function in (a).
(4 marks)
d) Determine the profit-maximising quantity and price if durian chocolates are charged a
uniform price and calculate the profits.
(4 marks)
e) Compare the profits from the two pricing practices. What is your advice to Malaysian
SMEs?
(2 marks)
© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL
CONFIDENTIAL 7 BM/OCT 2010/ECO556/555/550
QUESTION 3
a) Suppose a firm uses two inputs, unskilled labor (u) and skilled labor (s) to produce
output (Q). The production function is:
Q = 30s + 20u -1/ 2 s2 -1/4 u2
The price of skilled labor is RM10 per hour and the price of unskilled labor is RM5 per
hour.
i) Calculate MPs/MPu and Ps/Pu
(2 marks)
ii) Derive and explain the expansion path.
(4 marks)
iii) Suppose the budget is RM60. Formulate the Langrangian equation.
(1 mark)
iv) How many units of skilled and unskilled labor should the firm hire?
(4 marks)
b) An oligopolistic firm has the following demand curve functions:
P, =48-1.80!
P2 =64 -2.4Q2
i) Compute the price and output levels at the kink.
(4 marks)
ii) Find the value of MR-i and MR2 at the kink.
(3 marks)
iii) If marginal cost is constant at RM15 at all levels of output, determine the
optimal output rate and the price for the product.
(2 marks)
END OF QUESTION PAPER
© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL





CONFIDENTIAL BM/APR 2011/ECO556/555/550
UNIVERSITI TEKNOLOGI MARA
FINAL EXAMINATION
COURSE
COURSE CODE
EXAMINATION
TIME
MANAGERIAL ECONOMICS
ECO556/555/550
APRIL 2011
3 HOURS
INSTRUCTIONS TO CANDIDATES
1. This question paper consists of two (2) parts : PART A (6 Questions)
PART B (3 Questions)
2. Answer any five (5) questions from PART A and answer ALL questions from PART B in the
Answer Booklet. Start each answer on a new page.
3. Do not bring any material into the examination room unless permission is given by the
invigilator.
4. Please check to make sure that this examination pack consists of:
i) the Question Paper
ii) an Answer Booklet - provided by the Faculty
iii) a one - page Appendix
DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO
This examination paper consists of 7 printed pages
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CONFIDENTIAL 2 BM/APR 2011/ECO556/555/550
PART A
QUESTION 1
The demand function for Lydia Cyber Cafe (LCC) is given as:
P = 250-0.55Q
Where: Q is the number of customers per week and
P is the price of the service per hour (RM30).
a) Compute the price elasticity of demand at the given price. Would you advise LCC to
increase its price to raise revenue?
(3 marks)
b) How many customers should LCC serve if their objective is to maximise revenue?
(2 marks)
c) Briefly explain the relationship between price elasticity of demand and total revenue.
(3 marks)
QUESTION 2
Given the following total production function (Q), where firm's capital is held as constant:
Q = 3L2 - 0.05L3
Where: Q = units of output
L = units of labour
a) Calculate the range of labour over Stage I, II and III of production.
(5 marks)
b) Briefly explain the "Law of Diminishing Marginal Returns" and in which stage does it
set in.
(3 marks)
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QUESTION 3
Given a total cost function for a firm:
TC = 100 + 60Q-12Q2 + Q3
a) How much is the total fixed cost for this company?
(1 mark)
b) Determine the output level at which the marginal cost is at minimum.
(2 marks)
c) How much is the average cost when marginal cost is at the minimum?
(2 marks)
d) Does marginal cost intersect the average variable cost at 8 units of output? Show
your calculations.
(3 marks)
QUESTION 4
Jonathan is a dispatch clerk earning a monthly salary of RM900. As the cost of living in the
city is too high, he decides to go back to his village, to plant red chilies on a large scale. To
do this, he has to:
- quit his job
- take out a one time loan of RM18,000 for which he has to pay 10% interest per
year
- buy five packets of seeds at RM6.00 per packet (one outright purchase)
At harvest time, 12 months later, his yield is expected to be RM12,000 .
a) Based on the information above, explain the difference between explicit cost and
implicit cost and give examples of them.
(4 marks)
b) Justify whether Jonathan should proceed with his plan to become a farmer.
(4 marks)
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QUESTION 5
The demand and supply equations for a perfectly competitive market are given as:
QD= 6000-800P
Qs= -2000 + 1200P
Where P = price of eggs per dozen
Q = quantity of eggs (in dozens)
a) Determine the equilibrium price and quantity for this perfectly competitive market.
(2 marks)
b) Based on your answer in (a), what is the profit-maximising quantity for the firm in this
market, when its total cost function is:
TC = 500 + 10Q -0.2Q2
(3 marks)
c) Why do firms in a perfectly competitive market charge a constant price?
(3 marks)
QUESTION 6
a) Define price discrimination.
(1 mark)
b) Give any three (3) conditions required to practice price discrimination.
(3 marks)
c) Briefly explain any two (2) types of price discrimination.
(4 marks)
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PARTB
QUESTION 1
KB Pizza is a family business selling pizza. They estimated that demand for their pizza is
related to the price of the pizza itself (Pp), per capita income (Y), population (N) in thousands
and price of H (PH) a related good to pizza.
The following table shows the estimates of their linear regression model, with sales quantity
of pizza, Qp as a dependent variable:
Variable
Constant
Price of pizza, (PP)
income, (Y)
Price of H,(PH)
Population, (N)
Coefficient
-3755
- 78.63
0.091
66.47
376
Standard Error
-852
541
0.11
31
47
R-squared 0.968
Standard error of estimate 54.0
F-Statistic 38.5
Based on the following information, answer the following questions.
Pp = RM15 per unit PH = RM14 per unit
Y =RM4,500 N =15
a) Write the estimated regression equation for KB Pizza.
(2 marks)
b) Derive the demand curve function and marginal revenue function for KB Pizza.
(2 marks)
c) Determine the total-revenue maximising price and quantity for KB Pizza.
(3 marks)
d) At the total-revenue maximising price, what would you expect the range of sales to
be at 95% confidence interval, given t-value at 95% confidence interval is 1.96?
(2 marks)
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e) Compute and interpret the cross elasticity coefficient. What is the relationship
between the two goods?
(3 marks)
f) Evaluate how sales of KB Pizza would change during a recession.
(2 marks)
g) Assess the overall validity of the model for short-term forecasting purposes, in terms
of:
i) Significance of the variables
(2 marks)
ii) Coefficient of determination
(2 marks)
h) Briefly explain two(2) other factors that can influence the demand for KB Pizza.
(2 marks)
QUESTION 2
Sonic Sales and Service is a company that sells electrical goods in an oligopoly market and
it has estimated that its demand functions for price increases and price decreases are as
below:
For price increase: Q^ = 450 - 5PT
For price decrease: Q2 = 320 - 3.2P2
And total cost: TC = 50 + 30Q + 0.1Q2
a) i) Determine the price and quantity of electrical goods at the kink.
(3 marks)
ii) How much could the marginal cost increase before the optimal price
increase? How much could marginal cost fall before the optimal price
decrease?
(4 marks)
iii) Determine the profit-maximising price and quantity.
(4 marks)
iv) If the new total cost function is given as 60 + 55Q + 0.2Q2, will the profitmaximising
price and quantity change? If yes, determine the new price and
quantity.
(5 marks)
b) Explain two (2) differences between monopoly and monopolistic competition.
(4 marks)
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QUESTION 3
a) Erdin Company specializes in the production of computers. The company's
production function is:
Q = 200L025K065
Where Q = quantity of computers
L = labour input
K = capital input
The price of labour is RM50 per unit and capital is RM100 per unit. Their total cost is
RM5.000.
i) Derive the constraint and Lagrangian functions.
(2 marks)
ii) Determine the optimal combination of labour and capital, subject to the cost
constraint as above.
(6 marks)
iii) Calculate the value of the Lagrangian multiplier and interpret its meaning.
(2 marks)
iv) At the optimum level of production, how much is the average cost of output?
(2 marks)
v) What is the percentage change in output if capital increases by 6% and at the
same time labour also increases by 4%?
(2 marks)
b) Consider the following short-run production function for Syarikat ALFAFA:
Q = 20L - 0.5L2
Where L = labour input
Q = output.
The price of labour is RM50 per day and the price of output is RM10 per unit.
i) How many units of labour should Syarikat ALFAFA employ to maximise
profits?
(3 marks)
ii) How much is the total-profit earned by Syarikat ALFAFA per day?
(3 marks)
END OF QUESTION PAPER
© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL
CONFIDENTIAL APPENDIX 1 BM/APR 2011/ECO556/555/550
The following formulae may be helpful in answering the questions.
i) Quadratic formula
ax2 + bx + c = 0
XT x2 = -b ± V b2 - 4ac
2a
ii) Calculus formula
a) Y = a , where a is a constant
dY = 0
dX
b) Y = aXb
dY = b . a . X ( M ).
dX
c) U = g(X): U is an unspecified function, g, of X
V = h(X): V is an unspecified function, h, of X
The derivative of a sum (difference) is equal to the sum (difference) of the derivatives of
the individual terms. Thus, if Y = U + V, then:
dY = dU + dV
dX dX dX
d) If Y = U . V, then:
dY = U .dV + V.dU
dX dX dX
e) If Y = U/V, then:
V . d U - U . dV
dY= dX dX
dX V2
f) If Y = f(U), where U = g(X), then:
dY = dY.dJJ
dX dU dX
© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL




CONFIDENTIAL BM/JAN 201 2/ECO556/5551550
UNIVERSITI TEKNOLOGI MARA
FINAL EXAMINATION
COURSE MANAGERIAL ECONOMICS
COURSE CODE ECO55615551550
EXAMINATION JANUARY 2012
IIk'AI; 3 HOURS
INSTRUCTIONS TO CANDIDATES
1. This question paper consists of two (2) parts: PART A (6 Questions)
PART B (3 Questions)
Answer five (5) questions from PART A and ALL questions from PART B in the Answer
Booklet. Start each answer on a new page.
3 Do not bring any material into the examination room unless permission is given by the
invigilator.
4 Please check to make sure that this examination pack consists of
i) the Question Paper
ii) an Answer Booklet - provided by the Faculty
iii) a one - page Appendix
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This examination paper consists of 8 printed pages
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CONFIDENTIAL 2 BM/JAN 20121ECO55615551550
PART A
QUESTION I
a) Explain how goal-oriented managers use managerial economics analysis to help
them in their decision making.
(6 marks)
b) What is meant by optimal solution?
(2 marks)
QUESTION 2
The cinema industry in KL City can be categorised as a monopolistically competitive
industry. The demand curve of one of the cinemas is:
P = 5-0.0020
The total cost function is given by:
TC = 6Q - 0.004Q2 + 0.000001Q3
a) What is the profit maximizing price that can be charged by the cinema?
(4 marks)
b) Calculate the total amount of profit at the profit maximizing price.
(2 marks)
C) Can the owner of the cinema maintain this profit level in the long run? Why or why
not?
(2 marks)
QUESTION 3
a) Puan Sham has been earning RM55,000 yearly by managing a day-care centre for a
few years. She is deciding to change her career and intends to run her own
restaurant which she inherited from her family. This restaurant can be rented out to
another firm for RM800 per month. The required amount of all expenses in a year is
about RM45,000 while the potential revenue in the first year of operation is
RM8O,000.
i) What is the annual accounting profit for Puan Sham?
(2 marks)
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Calculate the total annual profit for Puan Sham using the economic approach.
Should she continue to manage the day-care center?
(3 marks)
b) A short-run average variable cost (AVC) function of a firm is given by:
AVC = 150-8Q+0.4Q2.
Its total fixed cost (TFC) is RM1 000.
i) Calculate the output level at which AVC will be minimized.
(2 marks)
ii) How much will be the minimum value of AVC?
(1 mark)
QUESTION 4
Syarikat Highlight produces two brands of torch lights which are Handy (H) and Superlight
(Y). The profit function (ii) of Syarikat Highlight is given by
= 80H - 2H2 - HY- 3Y2 + 100Y
However the firm faces a constraint that is the total output of Handy (H) and Superlight (Y)
must be 12.
a) Derive the constraint function and the Lagrangian multiplier equation.
(2 marks)
b) Determine the quantity of each brand of torch lights that will maximize profit.
(4 marks)
C) Calculate the value of the lagrangian multiplier and interpret it.
(2 marks)
QUESTION 5
A firm had run a multiple regression analysis for its product that involved 30 observations.
The following is the estimated function derived from the regression analysis:
Qx = 150-1.5Px +0.05Y+0.8A
Where:
Qx = quantity demanded for product X
Px = price of product X(RM)
Y = income(RM)
A = advertising expenditure(RM).
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Currently the value of each of the independent variables are:
Price of product X = RM1 ,000
Income = RM20,000
Advertising expenditure = RM6,000.
a) Determine the demand, total revenue and marginal revenue functions.
(3 marks)
b) Using the current values, calculate the quantity demanded for product X.
(1 mark)
C) Is the quantity of product X sensitive to its own price? Explain.
(2 marks)
d) Calculate the impact of a 10% increase in income on the demand for product X.
(2 marks)
QUESTION 6
The Research Department of a well-known dairy product Happy Belly has estimated that if
other firms in the industry do not respond to changes in the price of its product, its demand
curve will be:
Qi = 60— 0.5P1
However, if other firms respond and follow the changes in the price of its product its demand
curve will be:
Q2 = 50 - 0.4P2
Marginal cost of this firm is RM78.
a) In which market structure do you think Happy Belly operates? Justify your answer.
(3 marks)
b) Calculate the output and price at profit maximizing level.
(5 marks)
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PART B
QUESTION I
Admire Attire company wishes to estimate the demand function for its "Elegant" woman
dress. The company's manager predicted that the main determinants of "Elegant" woman
dress are:
Px = the price of an "Elegant" woman dress (RM)
Py = the price of a competitor's dress "Vogue" (RM)
Pz = the price of another competitor's dress, "Cutie 10" (RM)
Y = per capita disposable income (RM).
A regression was run and the results are shown below:
Dependent variable is Qx
Variable Coefficient Standard Error t-statistic
C 250.7 - -
Px 410.3 150.3 -2.73
Py 240.3 180.5 1.33
Pz 180.3 50.4 3.58
Y 1.23 0.23 5.35
R-Squared = 0.757
S.E of regression = 265.6
Qx represents quantity (units) of 'Elegant' woman dress demanded per month. The current
values of the dependent variables are:
Px = RM 80; Py RM 75; Pz RM82.5 and Y = RM5,250.
a) Write the estimated regression equation.
(2 marks)
b) At 95% confidence level, which of the independent variables are significant in
explaining the changes in quantity demanded of 'Elegant' woman dress? (Given
t-value at 95% confidence interval is 2).
(4 marks)
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C) Interpret the coefficient of determination. Suggest any other two factors that can be
included in the equation to improve the coefficient of determination.
(3 marks)
d) Calculate the cross elasticity of demand in terms of all the brands in the equation for
"Elegant" woman dress. Which competitor's brand is a higher threat to Admire Attire
company?
(6 marks)
e) Should Admire Attire company consider reducing its price in order to increase its total
revenue? Explain.
(3 marks)
f) At the current price, what range of sales volume can be expected at 95% confidence
level?
(2 marks)
QUESTION 2
Nazim Motors, a well-known local car manufacturer, has two main markets in the region
namely Vietnam and Hong Kong. Due to trade regulation, any vehicle sold in one country
cannot be resold in the other country. Based on the recent market survey, it has been
determined that the demand functions of Nazim Motors in the two markets are given as:
Hong Kong: PHK = 30,000 - 0.4QHK
Vietnam: Pv = 20,000 - 0.2 Q
The firm's total cost function is IC = 10,000,000 + 12,000Q
Where Q = QHK +
If Nazim Motors attempts to practice third degree price discrimination in order to
maximize its profit, what price should it charge in each market?
(6 marks)
What will be the amount of profits earned by the firm from its third degree
discrimination?
(4 marks)
Calculate how much should Nazim Motors charge instead if it does not practice price
discrimination.
(6 marks)
What will be the amount of profits without price discrimination for the firm?
(4 marks)
a)
b)
C)
d)
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QUESTION 3
a) Daya Tahan Sdn. Bhd. estimates the following production function for its semiconductor
products.
Q = 30K° L 0.6
Where Q = the rate of output
K = the capital input
L = the labour input.
Input prices are RM50 for capital and RM20 for labour. The firm is currently using
100 units of capital and 80 units of labour.
i) Calculate the total cost spent on inputs and the level of output produced by
Daya Tahan.
(2 marks)
ii) Is the current input mix efficient? If not, calculate the efficient input mix based
on the total cost calculated in (i).
(5 marks)
iii) Calculate the total quantity produced using the efficient input mix. Show the
efficient mix condition by using the isocost-isoquant diagram.
(4 marks)
iv) Determine the returns to scale (RTS) of the given production function.
(1 mark)
b) A car parking space in a busy business district of Kuala Lumpur houses a car wash
facility. It charges RM50 for a snow wash. The hourly wage rate is RM45. Recently
a researcher estimated a production function for the car wash service as follows:
Q = -0.8 + 4.5L - 0.3L2
Where Q = number of car wash
L = the labour input
i) Is this a short run or a long run production function? Justify your answer.
(2 marks)
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ii) Calculate the profit maximizing number of labour that should be employed.
(3 marks)
iii) How much is the total profit?
(3 marks)
END OF QUESTION PAPER
© Hak cipta Universiti Teknologi MARA CONFIDENTIAL
CONFIDENTIAL APPENDIX I BM/JAN 20121ECO55615551550
The following formulae may be helpful in answering the questions.
i) Quadratic formula
ax + bx + c = 0
xx2 = -b ±' b2-4ac
2a
ii) Calculus formula
a) Y = a where a is a constant
dY = 0
dX
b) YaXb
dY = b. a. X (b-i)
dX
c) U = g(X): U is an unspecified function, g, of X
V = h(X): V is an unspecified function, h, of X
The derivative of a sum (difference) is equal to the sum (difference) of the derivatives of
the individual terms. Thus, if Y = U + V, then:
dY = dU + dV
dX dX dX
d) lfY = U. V, then:
dY=U .dV+V.dU
dX dX dX
e) If Y = UN, then:
V dU - U. dV
dY = dX dX
dX V
f) If Y = f(U), where U = g(X), then:
dY = dY. dU
dX dU dX
© Hak cipta Universiti Teknologi MARA CONFIDENTIAL