SCHOOL OF BUSINESS & MANAGEMENT ITB

ASSIGNMENT ECONOMICS MB-3101

August 24, 2016
1. The invention of a self milking cow machine allows cows to milk themselves. Not only does this
reduce the need for higher cost human assistance in milking, but it also allows the cow to milk
herself tree times a day instead of two, leading to a healthier cow and increased milk
production.
a. Show the effect of this innovation through a demand and supply diagram. Show what
happen to the equilibrium quantity and price of milk.
b. Show the likely effect on equilibrium price and quantity of apple juice, assuming that apple
juice is a substitute for milk. Answer this question by drawing a new demand and supply
diagram for apple juice.
2. Describe what likely happen to market price and quantity for the particular goods in each of the
following cases :
a. A technological breakthrough lowers the cost of producing tractors in Indonesia while there
is an increasing in incomes of all citizen in Indonesia. Market : Tractors
b. The United States imposes a ban on the sale of oil companies that do business with Libya
and Iran. At the same time, a large reserve of drillable oil is discovered in Rocky Mountains
of Colorado. Market : Oil
c. In the summer 2000, many US people watched the Summer Olympics on NBC instead of
going to the movies. At the same time, tinking that summer time is te peak season for
movies, Holywood released a record number of movies. Market : movie tickets.
3. Angelina Jolie has a job as pharmacist in Guardian Pharmacy earning Rp 35 million per year and
she is deciding whether to take another job as the manager of Kimia Farma Pharmacy earning
Rp 50 million per year or purchase Biofarma pharmacy that generates revenue of Rp 210 million
per year. Jolie would have to use her Rp 20 million savings and borrow another Rp 80 millions at
an interest rate of 10 percent per year. Biophharma pharmacy has additional expenses of Rp 80
millions for drug supplies, Rp 40 millions for employees, Rp 10 million for ren, and Rp 5 million
for electricity.. Assume that income and business taxes are zero and there is no need to repay
the loan principle before three years (grace period).
a. What would be the business (accounting) and economic profit if Jolie purchased Biopharma
pharmacy? Should Jolie purchase biopharma?
b. After three years of operating, Jolie predicts that another competitor will open nearby and
this will drive down economic profit to zero. Please estimate how much is the Biopharma
pharmacy revenue when economic profit is zero.
c. Suppose that Jolie expects to sell the pharmacy at the end of three year for Rp 50 million
less than the price she paid for it. Assuming required return is 15 %, should Jolie still
purchase the biopharma pharmacy?
4. A SBM researcher estimated that the price elasticity of demand for automobiles in Indonesia is 1.2 while income elasticity of demand is 3.0. Next year Toyota Astra Motor and other domestic
automakers intend to increase the average price of automobiles by 5 % and they expect
consumers disposable income to rise by 3 %.
a. This year domestic automakers sell 8 million cars. How much car will be sold next year ?
b. If domestic automakers want to have an increase in sales by 5 %, how much all domestic
automakers have to increase (or decrease) price ?