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Assignment 01-ME

The document outlines an assignment for a managerial economics course, including two questions asking students to analyze situations involving business costs and demand curves. For the first question, students are asked to identify problems that could occur if a business manager sells designs to competitors. The second question asks students to construct a market demand curve based on supply and demand schedules and identify the market equilibrium point.

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76 views

Assignment 01-ME

The document outlines an assignment for a managerial economics course, including two questions asking students to analyze situations involving business costs and demand curves. For the first question, students are asked to identify problems that could occur if a business manager sells designs to competitors. The second question asks students to construct a market demand curve based on supply and demand schedules and identify the market equilibrium point.

Uploaded by

Ra meen
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Assignment 01

Managerial Economics – Saturday, 6:30-9:30


Due date: November 14, 2020
Total Marks: 05

Name: ABDUL SALEEM


Campus: Gulshan Campus
Enrollment ID: 16759
Question 1 2.5 Marks
a. The shareholder of Al-Karam wants to maximize his profits by selling his goods in the
larger quantities. In order to achieve his target (s) he hired a manager to look after his
business. However, the manager instead of maximizing business profits started
maximizing his own interest by selling the designs in black to the competitor’s designers.
Analyze the above situation and explain the possible problem that might occur for Al-
Karam.

(A). Answer
This is not a good sign for manager and for the organization both. When manager will sell goods
in black market then, it will lead to loss in sales as all profit will be earned by manager. For
example price of product will be $4 per unit and he will sell product in black market for $10 per
unit to the competitors which will help them to buy in greater stock and when the company goes
out of stock its competitors can sell the product in higher prices. The manager also will try to
make product shortage of new and branded products are demand in the market or he can just
make a company or a wholesaler to whom he will sell maximum products and will keep till the
company go out of stock and he will sell those items in higher prices. This will definitely put the
company’s image on stack as the customers and consumers of the company will be demotivated
towards the buying products from the company as they come to know that company has no
control on such activities.
b. Sahar is analyzing the probability to open her own beauty salon. If she chooses to operate
her own salon she would have to pay Rs. 70,000 p.m as rent and staff that would cost her
Rs. 30,000 p.m and is expected to earn Rs. 150,000 p.m. While if she continues working
as the head makeup artist in one of renowned salons of Karachi she would earn 120,000.
Analyze the information above and find explicit and implicit cost.

(B). Answer
Explicit costs are out-of-pocket costs for a firm—for example, payments for wages and salaries,
rent, or materials. Implicit costs are a specific type of opportunity cost: the cost of resources
already owned by the firm that could have been put to some other use. As we can analyze in
above information we can find the explicit and implicit cost as follows:
Explicit costs: 120,000
Implicit costs: 150,000
Explanation:

Question 2 2.5 Marks


a. Keeping the present rate of inflation (increase in the general price level) in mind,
consumers living in Karachi are anticipating that the price of tomatoes will go up just like
it did last year in November. In your opinion explain if there would be any impact on the
current demand for tomatoes or not. Also, if there would be any change elucidate the
movement or shift in the demand curve graphically.

b. Suppose that Zimal and Zawaiyar are the only consumers of perfumes in a particular
market. The following table shows their annual demand schedules:

Zawaiyar’s
Price (Per Bottle of Zimal’s Quantity
Quantity Market Supply
Perfume) Demanded
Demanded
100 600 650 250
200 500 550 450
300 400 450 850
400 300 350 1050
500 200 250 1250
600 100 150 1450
Given the following information construct market demand curve and find the market
equilibrium.
Answer:
Part A: Tomatoes are the complimentary good for demanders. When price increase or decrease
there is a movement in demand curve. On the other hand, when determinants of demand changed
so, shifting will occur. Price of tomatoes increased day by day it causes movement along the
curve. In graphical figure shows that when price of tomatoes increases with 50% proportion so
the demand will contract with the same proportion. In economics, perishable item is become a
risky loop for market. Tomatoes are the perishable item, consumer cannot store it for a very long
period. It is clear to understand that whatever price is consumer’s quantity demand will be same.

Part B: It is mentioned that when price increases quantity demand will decrease. In market
demand curve, there are more than 2 buyers with different demand. In this question zimal’s
quantity demanded decreases when price increases on the other hand with the same proportion
zawaiyar’s quantity demand also decreased when price increases. market equilibrium is that
situation where demand and supply becomes equal. In this case, market supply vary with a big
proportion, in these figures there isn’t any equilibrium point. For equilibrium point, both
demander’s demand and market supply should meet at a certain point. If price is 200 both
demanders are agree on 500 quantity demandso there will be a chance in market supply to meet
equilibrium point.

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