BMME5103/JAN16/A-NK

ASSIGNMENT SUBMISSION AND ASSESSMENT

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BMME5103
MANAGERIAL ECONOMICS
JANUARY 2016
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INSTRUCTIONS TO STUDENTS
1. This assignment contains question that is set in English.
2. Answer in English.
3. Learners are to submit assignment only in MsWord (.docx) format unless
specified otherwise. Please refrain from converting text / phrases into
picture format such as .gif / .jpeg / print screen / etc.
4. Download the language version of the assignment template concerned
from the myVLE for preparation and submission of your assignment. Your
assignment should be typed using 12 point Times New Roman font and
1.5 line spacing.
5. Your assignment should be between 3,000 to 5,000 words excluding
references. The number of words should be shown at the end of your
assignment. Do not copy the assignment question and instructions to
your answer.
6. Submission of assignment:

Face-to-face Class Student:

You MUST submit a softcopy of your assignment online through myVLE
and a hardcopy to your facilitator.

Online student:
You MUST submit a softcopy of your assignment via myVLE and
another softcopy to the facilitator via e-mail.

7. You can submit your assignment ONCE only in a SINGLE file.

8. Your assignment must be submitted between 11th March 2016 until
13th March 2016.
9. Your assignment should be prepared individually. You should not copy
another persons assignment. You should also not plagiarise another
persons work as your own.

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10.Please ensure that you keep the RECEIPT issued upon submisson of your
assignment as proof of submission. Your assignment is considered as NOT
submitted if you fail to produce the submission receipt in any dispute
arises concerning assignment submission.
EVALUATION
This assignment accounts for 60% of the total marks for the course and shall
be assessed based on the Rubrics attached.
You would be given feedback on the assignment before the Final Semester
Examination commences.
PLAGIARISM: MARKS DEDUCTION
Warning: The submitted assignment will automatically undergo a similarity
check. If plagiarism is detected, marks would be deducted as follows:

No.

% Similarity Group

1
2
3
4

0 30
30.01 50
50.01 70
70.01 100

% of Mark
Deduction
0
5
10
100

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ASSIGNMENT QUESTION
PART 1
PURPOSE:
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.
REQUIREMENT:
1. Two investments have the following expected returns (net present values) and
standard deviation of returns.
PROJECT

EXPECTED RETURNS

A
B

RM50,000
RM250,000

STANDARD
DEVIATION
RM40,000
RM125,000

Which one has a higher risk? Justify your answer.

(4 Marks)
2. The AIROD Aircraft Company manufacturers small, pleasureuse 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
collected:
YEAR

AIRCRAFT
SALES (UNITS)

2013
2014
2015

8,000
10,000
8,000

AVERAGE
PRICE
(RM
MILLIONS)
100
89.50
109.5

DISPOSIBLE PERSONAL
INCOME (IN CONSTANT
2013 in RM BILLIONS)
650
610
590

1. Estimate the arc price elasticity of demand using the 2013 and 2014 data.
(4 Marks)
2. Estimate the arc income elasticity of demand using the 2013 and 2014
data.
(4 Marks)
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
elasticity.

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(4 Marks)
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.
(4 Marks)
[TOTAL MARKS : 20]
PART 2
PURPOSE:
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.
REQUIREMENT:

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
YEAR
GDP (million of
Labour
CAPITAL (million of
1960 Peso)
(thousands of
1960 Peso)
people)
1955
114,043
8,310
182,113
1956
120,410
8,529
193,749
1957
129,187
8,738
205,192
1958
134,705
8,952
215,130
1959
139,960
9,171
225,021
1960
150,511
9,569
237,026
1961
157,897
9,527
248,897
1962
165,286
9,662
260,661
1963
178,491
10,334
275,466
1964
199,457
10,981
295,378
1965
212,323
11,746
315,715
1966
226,977
11,521
337,642
1967
241,194
11,540
363,599
1968
260,881
12,066
391,847
1969
277,498
12,297
422,382
1970
296,530
12,955
455,049
1971
306,712
13,338
484,677
1972
329,030
13,738
520,553
1973
354,057
15,924
561,531
1974
374,977
14,154
609,825
1. Fit a regression equation using GDP as the dependent variable and Labour &
Capital as the independent variables. (Use logarithm for all variables)
(8 Marks)

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2. Fit a regression equation using GDP/Labour as the dependent variable and

GDP/Capital as the independent variable. (Use logarithm for all variables)
(8 Marks)
3. Determine whether this production function exhibits increasing, decreasing
or constant returns to scale and show with suitable diagram.
(4 Marks)
[TOTAL MARKS : 20]

PART 3
PURPOSE:
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.
REQUIREMENT:
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 Porters Five Forces
Strategic Framework.
(10 Marks)
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
Alchems 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 charge?
(6 Marks)
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?

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(4 Marks)
[TOTAL MARKS : 20]

PART 4 :
PURPOSE:
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.
REQUIREMENT:
DRAM Chipmakers Pay Enormous Fines for Forming A Global CARTEL
The worlds 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 1999-2002 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 the
case.
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.
(10 Marks)
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 following function:

BMME5103/JAN16/A-NK

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 firms are:
TCs = 70,000 + 5QS+ 0.25QS
TCt = 110,000 + 5QT + 0.15QT
i.

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.
(15 Marks)

ii.

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.
(15 Marks)
[TOTAL MARKS: 40]