BMME5103/MAY15/A-RR

OUM BUSINESS SCHOOL

ASSIGNMENT SUBMISSION AND ASSESSMENT
_________________________________________________________________________
BMME5103
MANAGERIAL ECONOMICS
MAY 2015
_________________________________________________________________________
INSTRUCTIONS TO STUDENTS
1. This assignment contains question that is set in English.
2. Answer in English only.
3. Your assignment should be typed using 12 point Times New Roman font and
1.5 line spacing.
4. You must submit your hardcopy assignment to your Fasilitator and ONLINE via the MyVLE. Refer to the portal for instructions on the procedures to
submit your assignment on-line. You are advised to keep a copy of your
submitted assignment and proof of the submission for personal reference.
Your assignment must be submitted before or on 12th July 2015.
5. Your assignment should be prepared individually. You should not copy another
persons assignment. You should also not plagiarise another persons work as
your own.
EVALUATION
This assignment accounts for

60% of the total marks for the course.

BMME5103/MAY15/A-RR

ASSIGNMENT QUESTION
PART 1
PURPOSE:
The purpose of PART 1 of this assignment is to enable the students to analyse
the fundamental relationship between shareholders and managers of firms.
REQUIREMENT:
Separation of ownership and control of firms often leads to the occurrence of
agency problems. In an attempt to mitigate agency problems, firms may incur
several agency costs.
1. Explain clearly what agency problem is. Focus your answer on why and
how it may occur. Give several examples based on your experience or
knowledge of its occurrence. Preferably, use local examples.
( 10 Marks)
2. Determine several agency costs firms may incur because of agency
problems. Search for examples and explain.
(10 Marks)
(Total: 20 marks)
PART 2
PURPOSE:
The purpose of this assignment is to provide the students with the skill to
estimate demand functions and to appreciate their usefulness in the real world.
REQUIREMENT:
You have been presented with the following data and asked to fit statistical
demand functions:
SALES REGION

1
15.00
2
13.50
3

SALES (Y)
PROMOTION EXPENSES (A)
SELLING PRICE (P)
(X 1000 LITERS)
(X RM1000)
(RM/LITER)
160
220

150
160

140

50

190

190

130

90

16.50
4
14.50
5
17.00

BMME5103/MAY15/A-RR

160

60

200

140

150

110

210

200

190

100

16.00
7
13.00
8
18.00
9
12.00
10
15.50
You are required to do the following:

1. Develop a simple regression model with paint sales (Y) as the dependent
variable and selling price (P) as the independent variable.
a. Show the estimated regression equation.
b. Give an economic interpretation of the estimated intercept (a) and
slope (b) coefficient.
c. Test the hypothesis (at the 0.05 level of significance) that there is no
relationship (i.e., = 0) between the variables.
d. Calculate the coefficient of determination.
e. Perform an analysis of variance on the regression, including an F-test
of the overall significance of the results (at the 0.05 level).
f. Based on the regression model, determine the best estimate of paint
sales in a sales region where the selling price is RM14.50. Construct an
approximate 95 percent prediction interval.
g. Determine the price elasticity of demand at a selling price of RM14.50.
(Sub-Total: 14 Marks)

2. Suppose one is interested in developing a multiple regression model with

paint sales (Y) as the dependent variable and promotional expenditures
(A) and selling price (P) as the independent variables.
a. Show the estimated regression equation.
b. Give an economic interpretation of the estimated slope (bs) coefficients.
c. Test the hypothesis (at the 5 percent level of significance) that there is
no relationship between the dependent variable and each of the
independent variables.
d. Determine the coefficient of determination.
e. Perform an analysis of variance on the regression, including an F-test
of the overall significance of the results (at the 5 percent level).
f. Based on the regression model, determine the best estimate of paint
sales in a sales region where promotional expenditures are RM80(000)
and the selling price is RM12.50.
g. Determine the point promotional and price elasticities at the values of
promotional expenditures and selling price given in part (f).
(21 Marks)
(Total: 35 marks)

BMME5103/MAY15/A-RR

https://www.solutioninn.com/instant_checkout?pdid=26817386475

PART 3
PURPOSE:
The purpose of this assignment question is to enable the students to develop an
understanding on the use of mathematics in economics; in particular how it helps
managers make decisions on achieving the firmsobjectives such as profit
maximization.

REQUIREMENT:
The Lumins Lamp Company, a producer of old-style oil lamps, estimated the
following demand function for its product:
Q = 120,000 10,000P
where Q is the quantity demanded per year and P is the price per lamp. The
firms fixed costs are $12,000 and variable costs are $1.50 per lamp.
a.
b.
c.
d.
e.

Write an equation for the total revenue (TR) function in terms of Q.

Specify the marginal revenue function.
Write an equation for the total cost (TC) function in terms of Q.
Specify the marginal cost function.
Write an equation for total profits () in terms of Q. At what level of output
(Q) are total profits maximized? What price will be charged? What are total
profits at this output level?
f. Check your answers in Part (e) by equating the marginal revenue and
marginal cost functions, determined in Parts (b) and (d), and solving for Q.
g. What model of market pricing behavior has been assumed in this
problem?
(Total: 21 marks)

BMME5103/MAY15/A-RR

PART 4
PURPOSE:
The purpose of this assgnment question is to ensure that the students are able to
apply his/her knowledge on economic theories in assesing current events in the
real world. firmsevaluate levels of competitiveness in various market structures
and to introduce the correct strategies in order to obtain competitive edge in a
selected market.
REQUIREMENT:
Suppose that two Japanese companies, Hitachi and Toshiba, are the sole
producers (i.e., duopolists) of a microprocessor chip used in a number of different
brands of personal computers. Assume that total demand for the chips is fixed
and that each firm charges the same price for the chips.
Each firms market share and profits are a function of the magnitude of the
promotional campaign used to promote its version of the chip. Also assume that
only two strategies are available to each firm: a limited promotional campaign
(budget) and an extensive promotional campaign (budget). If the two firms
engage in a limited promotional campaign, each firm will earn a quarterly profit
of $7.5 million. If the two firms undertake an extensive promotional campaign,
each firm will earn a quarterly profit of $5.0 million. With this strategy
combination, market share and total sales will be the same as for a limited
promotional campaign, but promotional costs will be higher and hence profits will
be lower. If either firm engages in a limited promotional campaign; and the other
firm undertakes an extensive promotional campaign, then the firm that adopts
the extensive campaign will increase its market share and earn a profit of $9
million, whereas the firm that chooses the limited campaign will earn a profit of
only $4 million.
a. Develop a payoff matrix for this decision-making problem.
b. In the absence of a binding and enforceable agreement, determine the
dominant advertising strategy and minimum payoff for Hitachi.
c. Determine the dominant advertising strategy and minimum payoff for
Toshiba.
d. Explain why the firms may choose not to play their dominant strategies
whenever this game is repeated over multiple decision-making periods.

BMME5103/MAY15/A-RR

(24 Marks)
(GRAND TOTAL: 100 MARKS)