Managerial Economics Assignment

Table of Contact

Page

Content table 1

Section (A)

1.0 2

2.0 2-3

3.0 4-6

4.0 6-9

5.0 9 - 11

6.0 11 - 12

7.0 12 - 13

Section (B)

1.0 14 - 17

2.0 17 - 19

3.0 19 – 22

References 22 - 23

1
Section A

1.0

Total tuition fee for MBA = 20,000 RM

Book fee = 2000 RM

Transportation charges = 500 RM

Explicit cost = 22500 RM

Total duration of course = 18 months

Current salary = 2500/month

Total salaries of him for 18 months = 45000 RM

Implicit cost = 45000 RM

Financial cost = 22500 RM

Economic cost = Explicit + Implicit

= 22500+45000

= 67500 RM

2.0

TR = 60Q – Q^2

TC = Q^2 + 30Q +30

2
TC= ½ Q^2 + 30Q +30

100+60Q = 0.5Q^2 + 60Q

100 = 0.5Q^2

Q^2 = 100/0.5

Q = 14

MR = MC

MR = αTC/αQ

= ½ Q^2+30Q+30

14

= (½ * 14^2) + (30*14) +30

14

= 14+420+30

14

= 464

14

MR = 33.14

By the above calculation, we can only have maximum profit 33.14 after selling 14 quantities.

If we want more profit in the long run, we need to find better way to generate more profit.

3
3.0

Price elasticity of demand (PED) is a measurement of economics that how demanded quantity of
a product will be affected any changes in their price. As another ways, it’s a way to find out the
consumers’ responsiveness in price fluctuations.

Price Elasticity of Demand (PED) =% ▲Quantity Demanded / % ▲in Price

Since demanded of quantity usually fall with price, the coefficient of price elasticity is almost
negative. Economists usually express the coefficient as an increase positive number even when it
is opposite meaning. The additional marginal profit can make up for the little decrease in
purchase.

When the price elasticity of a product is less than 1, it’s inelastic. One unit rise in price resulted
in a smaller than a unit demand decrease. On the next way, if the coefficient is greater than one,
the product is elastic. It means an increase in unit price will cause increase demand drop.
Revenue would be maximized by the time the price elasticity of a product equals with 1, or,
when demand elasticity is unit elastic.

Peak selling price = MC * (PEd/PEd + 1)

=200 * (-3) / (-3+1)

=200 * (-3) / (-2)

=200 * 1.5

=300

Optimal selling price will be 300 by the time PEd is -3 and MC is 200 R>

4
4.0

Price Discrimination

When market is competitive, price discrimination will occur when homogenous good and service
are selling by different prices by same seller. When price discrimination is pure, the good and
service providers will charge to purchasers the perfect maximum price that they are willing to
pay. Firms price discrimination by making most revenue as possible as from their every
customer. It allows the producer to capture total surplus by selling the prices that closer to
customer’s willing to pay.

Thee condition which create price discrimination are,

1. Nature of commodity
Price discrimination can be possible when commodity or service nature is no possibility
for transference from a market to the another. The product that sold in cheap market
cannot resold in the high market.
2. Distance of two market
Price discrimination can be possible by the time the two different markets are far away by
distance. Transferring goods cannot possible between two different markets.
3. Ignorance of the consumers
Price discrimination can be possible by the consumer are ignored about discrimination
price; a part of market prices is less than the other because of they are not aware.
4. Government regulation
Price discrimination can be happened when the rules of government are permit. Then, the
rates of electricity are fixed with higher level in industry usage and lower level in
domestics.
5. Geographical discrimination
Price discrimination can be occurred on geographical situational account. Geographical
discrimination is possibly happened when there is no commodity unit sold in a market
can be move or transferred to another market.
6. Difference in elasticity of demand

5
 Every commodity may have different demand elasticity in different kind of markets. A
commodity’s market can be divided on elasticity of demand of it.

As example, when we purchase an air ticket, you buy ticket in February for a vacation that will
happen in September, you will have to pay less than other’s ticket at last minute. In general,
people who are planning their vacation about paying lower price than the people who book
closer to the vacation date are more concerned. Airlines are using pricing mechanism called
inter-temporal, that allows to target price sensitive and insensitive customers. As a form of price
discrimination, we can see among low cost airlines industry. Airlines sold certain number of air
tickets at low price because they want to get more attention from price sensitive customers.
Visioning is one of the price discrimination form that different prices are charged base on
transport service quality. The high quality airlines are mostly expensive however customer have
options and flexibility than other economy airlines. Customers can get advantages and benefits
from price discrimination.

[CITATION Jov18 \l 1033 ]

5.0

Short run cost is a period of time when supply is fixed at least one of the production
factors. We can assume which the plant quantity and fixed machinery and the production
could be changed though altering variable input like raw materials, labor and energy.

In short run, diminishing returns law states about as we use machine more on variable
input unit to fixed capital and land amount, total output change will be rise at first and
fall later. Labor diminishing returns happen when labor marginal product start to fall.
Then the output of total will be arising at the falling rate.

The marginal cost of supplying a unit of extra output is linked with labor marginal
productivity. Diminishing return law implies the marginal cost will increase as output
rises. Finally, marginal cost will lead to rise average total cost When the law of
diminishing return set to rise in marginal cost curve. Average total cost continues to

6
 decrease until where the rise in average variable cost with the decrease of average fix
cost. This is called the output productive efficiency.

Cost

MC ATC

AVC

AFC

Q1 Q2 Quantity

Short-run cost curves

Economics of scale and long run cost curve

7
 Economies of sales are reducing cost that happen when firms increase production. Fixed cost
such as administration cost are spread on more production unit. Sometimes variable cost of the
company can negotiate to lower. Economies of scales not only benefit to the firms but also the
customers. When economy grows with lower price can be increased demand. The long run
average of firms show what happen to cost of average as the firm expansion and it is tangent to
short run average curves. Each of short run average cost curve relates to expansion phase.
[ CITATION Geo10 \l 1033 ]

Revenue

Lon run cost curve

Quantity
Q

Long run cost curve

Economic globalization

Economic globalization involves a wide variety of processes, opportunities, and problems related

to the spread of economic activities among countries around the world. Economic globalization

8
has involved an increase in the international movements of goods and services, capital (and labor
as people migrate for employment.  Global competitiveness is harmed by generous social
provisions and heavy tax burdens, thus putting downward pressures on welfare spending.

In the modern society with economic globalization, every day a large amount of data is sent over
the network, some of which involve the important information related to political, military,
commercial, financial, and personal privacy. Once the information is illegally intercepted, it will
lead to incalculable consequences. Since information hiding techniques have the role of keeping
the confidentiality of information, they can protect the information. Covert communication is
mainly used for secure communication of confidential information; it protects the information
that is embedded in the cover object, where usually we adopt the multimedia information as the
cover object. Due to the huge amount of multimedia information online, the secret information is
hard to be detected by an eavesdropper.

[ CITATION JLP01 \l 1033 ]

6.0

Perfect competition

Perfect competition is a type of market that a number of buying individual or groups or selling
individual or groups is much large. They are engaged between buyers and sellers a same product
not including artificial restrict and process very perfect knowledge of market in a certain period.

 Large number of buyers and sellers

The first situation is which number of buying and selling person need to be very large
which any of them is influence not cost but price and output is for a whole industry. Yin
the same market buyer position and seller position is like a single water drop in big
ocean.

 Free entry and exit of firms

The focal firms have to be enter and leave to market freely. Hoping for the profit, firms
will come in the market and there is no profit for them they will be leave the market.

9
 Homogeneity of the product
Every individual firm should sell and produce a same product then there is no preference
for buyers and individual seller’s product to others.

 Perfect knowledge of market

Purchasers and sellers need to have full knowledge for the prices that goods are bought
and the sold prices at that the rest are prepared for buying and selling.

 The perfect mobility of good and production factors

It should be the perfect mobility production and goods factors in the industries. The
goods or material should be freely more to that places where firms can make fluctuate to
highest price.

 Absences of price control

It should become full or complete openness for buying and selling goods. Prices are able
to change free and in response in the conditions of supply and demand.

 Perfect competition among buyers and sellers

When buyers and sellers gotten full freedom for goods bargaining, restriction is not
change or demand is less, feeling of competition must present there.

 One Price of the Commodity:

There is always one price of the commodity available in the market.

 Independent Relationship between Buyers and Sellers:

There should not be any attachment between sellers and purchasers in the market. Here,
the seller should not show pick and choose method in accepting the price of the
commodity. [ CITATION Saq20 \l 1033 ] 

10
(b)Oligopoly

Oligopoly is an industry which is dominated the market of a lot of businesses. There are a lot of
businesses which sell homogenous of different products.

There are a lot of sellers in market, every of seller influences the nature of the firms and other firms
also influence it.

The characteristics of Oligopoly are-

Few firms

Under Oligopoly market, there are some large firms although the same number of firms is not
defined. There are a lot of competitions since all of the firm produces significant part of output total.

Barriers to Entry

Under Oligopoly market, a firm could get super-normal profits in long run as barriers to entry like
licenses, patents, control over raw materials, etc. These are cover the new businesses entry in the
industry or market.

Non-Price Competition

Firms want to avoid price competition by the price wars fear and then depend on non-price ways or
methods like after sale service and marketing, warranties, etc. This ensures which firms could
influence demand and brand recognition building.

Interdependence

Under Oligopoly market, since some firms hold distinct share in the output total of the industry,
every of firm is affected by the output and price decisions of competitive firms. Therefore, there is
interdependence among all of firms in an oligopoly market. And then, a firm taking the action and

11
reacting of its competitive firm when determining its level of output and price. [ CITATION
Oli20 \l 1033 ]

7.0

Oil production cost in Middle-East Asia countries is lower than in US. OPEC is a group of oil
production countries at Middle-East of Asia. It’s maintained forty percentage of world’s oil
production. Last a few years ago, the technology for oil production is developing in OPEC
countries and political situation is stable than before. So, OPEC countries can produce oil more
than past year. In the other side, US government forced the oil production in US too. The
competition between OPEC countries ad US lead to increasing supply of oil in the market. There
is a lot of supply in the market while demand is stable. The supply curve shift to outwork
because of the quantity of supply is affected by the production side.

12
 S0

E0
P0 S1 Shift to right

P1 E1

Q0
Q1

Shift to left
P0
E0

P1 E1
D0

D1

Q0 Q1

13
Section B

1.0

Macroeconomics is portions of financial aspects which incorporate various types of monetary

totals, for example, value, work level, national salary and so forth. Macroeconomics job in
organizations can find in the economy condition influences each firm. Firms are economy's little
part that in general so they can't make changes outer condition without anyone else; be that as it
may, they make respond in economy changes. Firms change their conduct and arrangements
according to outside economy's response.

• Interest Rate Fall

Increasing and falling pace of intrigue make influences in exercises of business and the
purchasing inclinations of the association's clients. Customers can take favorable circumstances
of financing costs low by purchasing things due to the installments for intrigue, they will make
on credit to buy that sort of things will be lower. Organization in such phase of loan cost low by
and large extend in light of the interest increment for this items and the lower the extension cost.

• Government Spending

Government gets the cash the most from the tax assessment; Thus, high government uses infers
high tax assessment that prompts lower discretionary cash flow left close by of customer which
further prompts shopper spending decrease on merchandise of various firms. In next manner,

14
state government is spending higher on school's/training segment; this would prompt high in
business pay which supply schools with books and so on.

High joblessness pace of economy => Lower spending of shoppers => less popular for yield of
firm =>Firm chop down their creation and joblessness will more increment.

• Inflation

Rising prompts decline in individuals' genuine salary and afterward their purchasing power falls
which prompts decline in the interest of business and its items. Expansion additionally prompts
more significant compensations which prompts increment in cost of work and afterward low
benefit for firms. An unpredictable expansion isn't well for business self-assurance and will not
make certain on which or what is expense and value of them and going to turn out to be later that
will diminish their spending in capital speculation.

Since the business condition is legitimately identified with the association, cooperating
with that condition is critical to all business associations. The accomplishment of an
association relies principally upon the viability of its connection with the earth.

Organizations are influenced by different elements that by and large business condition
structure. These variables incorporate monetary, social, lawful, specialized and political
elements. Hence, the business condition is the entirety of every outside power influencing
the association and business tasks.. [ CITATION Kot04 \l 1033 ]

These powers incorporate clients, leasers, contenders, governments, socio-social

associations, ideological groups, national and worldwide associations. A portion of these
powers directly affect the business, while others indirectly affect the business. Business
situations can be separated into three classes: inward, operational, and general/outer.

 Politics related environment factor

Politics environment of any nation significantly affects organizations. Politics

environment is affected by political association, government system, the nature and

15
extent of organization, national political soundness, international strategy, barrier and
military approach, national and national and universal pictures. National strategies that
limit the development of worldwide organizations in the market naturally limit the
organization’s business activities and accordingly limit its development. So also,
government approaches that permit opportunity, free imports and sends out, and the
convergence of external capital and innovative likewise influence business activities.

 Financial and natural elements

The monetary variables that influence an organization are the arrangement of financial
framework of country, its structure and financial strategies, how capital markets are
composed, the nature of creation factors, business cycles and financial foundation.
Effective associations must comprehend the outside elements that influence their
business, envision potential economic situations, and endeavor to expand benefits while
limiting expenses. Burberry made the most of this chance to build advertise yield when
he saw appeal for overcoats.

 Social ecological elements

The social condition of a nation impacts the activity of an organization to decide the
social worth framework. Sociological elements decide work culture, worker portability,
workgroups, and so forth., and subsequently build up the business tasks of an
organization. These components incorporate cost structure, customs and practices, social
legacy, individuals' view of riches, salary and logical techniques, regard for status, and
work portability. Social changes in life have prompted new style patterns influencing
organizations in all pieces of the economy.

 Specialized ecological elements

Specialized elements influence the business related with innovation speculation,

innovation application, and the effect of innovation available. In this way, mechanical

16
advances significantly affect national business. The sort and nature of products and
ventures delivered by the organization, and the sorts and nature of plants and gear utilized
by the organization, rely upon the kind of innovation utilized by the organization.

 Legitimate ecological components

The legitimate condition significantly affects organizations and their administrators.

Legitimate components identify with the adaptability and versatility of the laws and
lawful standards overseeing your business. It likewise incorporates precise choices and
court choices. Lawful arrangements may increment or decline income relying upon the
business condition.  [ CITATION Sha10 \l 1033 ]

2.0

Main components and factors of aggregate demand

There are main four principal aggregate demand factors or components. They are Consumption
of country (C), Investment made by firm (I), Government Spending on infrastructure (G) and Net
Exports that is export less import (X-M). There is an increase in any of the four factors or
components of demand aggregate outcome in a rise or move within the curve of aggregate
demand.

AD = C + I + G + (X-M)

Consumption

It’s made by individual households, and sometimes accounts for consumption for the bigger part
of aggregate demand.

1. Consumer Confidence

17
If consumers have confident about their upcoming income, stability of job, and then the economy
is growing and very stable, spending of many consumers may be going to extend. But, job
insecurity and income uncertainty may be going to delay on spending.

2. Interest Rates

Lower interest rates mean to extend consumption of consumers because consumers purchase
more goods on bank credit. When interest rates are low, and borrowing will be cheap.
Consumers borrow to shop for houses, that is among the most important buying and low interest
rates means lower down payments in order that individual households can be spend more on
another thing.

3. Consumer Debt

When consumers own a lot of debt, they don’t want to shop for more since they would have to
pay his debt firstly. Lower debt of consumer increases consumer’s consumption and aggregate
demand.

4. Wealth

Wealth is all assets own by a household, like properties or stock. There is increase in properties
may be going increase in consumption.

Investment

Investment mean spending in business by firms on using capital, not individual households.

1. Interest Rates

Firms borrow from banks to form large capital-intensive purchases, and if the rate of interest
decreases, it becomes cheaper for firms to take a position and provides an incentive for firms to
take on risk.

18
2. Business Confidence

If firms are confident about the economy and its future growth, they're more likely to take a
position in capital, new projects, and buildings/machinery.

3. Investment Policy

If governments provide incentives like tax breaks, subsidies, loans at lower interest rates then
investment can increase. However, corruption and bureaucracy deters investment.

4. National Income
As firms increase output, they might get to invest in new machines. This relationship is known as
The Accelerator. The assumption behind the accelerator is that firms will want to main a hard
and fast capital to output ratio, meaning that if a factory uses one machine to supply 1000 goods,
and therefore the firms must produce 3000 goods more, then the firm will buy 3 more machines.
[ CITATION Pra19 \l 1033 ].

3.0

Foreign Exchange rate is one among the foremost important means through which a country’s
relative level of economic health is decided. A country's exchange rate provides a window to its
economic stability, which is why it's constantly watched and analyzed. If you're thinking of
sending or receiving money from overseas, you would like to stay a keen eye on the currency
exchange rates.

The rate of exchange is that the rate at which one country's currency could also be converted into
another. it's going to fluctuate daily with the changing economic process of supply and demand
of currencies from one country to a different. For these reasons; when sending or receiving
money internationally, it's important to know what determines exchange rates.

1. Inflation Rates

19
Changes in market inflation cause changes in currency exchange rates and a rustic with a lower
rate of inflation than another's will see an appreciation within the value of its currency. the costs
of products and services increase at a slower rate where the inflation is low. a rustic with a
consistently lower rate of inflation exhibits a rising currency value while a rustic with higher
inflation typically sees depreciation in its currency and is typically amid higher interest rates

2. Interest Rates

Changes in rate of interest affect currency value and dollar rate of exchange. Forex rates, interest
rates, and inflation are all correlated. Increases in interest rates cause a country's currency to
understand because higher interest rates provide higher rates to lenders, thereby attracting more
foreign capital, which causes an increase in exchange rates

3. Country’s accounting / Balance of Payments

A country’s accounting reflects balance of trade and earnings on foreign investment. It consists
of total number of transactions including its exports, imports, debt, etc. A deficit in accounting
thanks to spending more of its currency on importing products than it's earning through sale of
exports causes depreciation. Balance of payments fluctuates rate of exchange of its domestic
currency.

4. Government Debt

Government debt is debt or debt owned by the central government. a rustic with government debt
is a smaller amount likely to accumulate foreign capital, resulting in inflation. Foreign investors
will sell their bonds within the open market if the market predicts government debt within a
particular country. As a result, a decrease within the value of its rate of exchange will follow.

20
5. Terms of Trade

A country's terms of trade improve if its exports prices rise at a greater rate than its imports
prices. This leads to higher revenue, which causes a better demand for the country's currency and
a rise in its currency's value. This leads to an appreciation of rate of exchange.

6. Political Stability & Performance

A country's political state and economic performance can affect its currency strength. a rustic
with less risk for political turmoil is more attractive to foreign investors, as a result, drawing
investment faraway from other countries with more political and economic stability. Increase in
foreign capital, in turn, results in an appreciation within the value of its domestic currency. a
rustic with sound financial and national trading policy doesn't give any room for uncertainty in
value of its currency. But, a rustic susceptible to political confusions may even see a depreciation
in exchange rates.

7. Recession

When a rustic experience a recession, its interest rates are likely to fall, decreasing its chances to
accumulate foreign capital. As a result, its currency weakens as compared thereto of other
countries, therefore lowering the rate of exchange.

8. Speculation

If a country's currency value is predicted to rise, investors will demand more of that currency so
as to form a profit within the near future. As a result, the worth of the currency will rise thanks to

21
the rise in demand. With this increase in currency value comes an increase within the rate of
exchange also. [ CITATION Ano19 \l 1033 ]

As far as in my knowledge, there are tons of the critical factor which will have caused the recent
depreciation. they'll be rate of inflation, rate of interest and term of trade. the worth of products
and services are increased faster than before within the recent year. Increasing price faster
indicates there'll be inflation.

First, high taxes and unproductive use of tax money: I even have lived during this country long
enough to understand that the products and Services Tax (GST) may be a major culprit of
inflation, causing prices to escalate above the GST rate thanks to our half-baked implementation.

Second, when there are an excessive amount of fat or unproductivity within the economy: When
there are sectors that get the majority of the income/subsidies/wages for doing nothing, they
cause inflation.

Third, when Malaysia have too many over-priced projects and contracts: When contractors and
promoters get an excessive amount of profit, the people must buy it through higher prices. There
are not any free lunches during this world.

Fourth, when government borrows and spends too much: Fiscal deficit may be a given in
Malaysia, no matter the state of the economy. Borrowing to finance deficit from inflationary
sources could make things worse.

Fifth, when policies favor the cronies: When Malaysia have massive distortions and profiteering
thanks to collusion and complicity, prices will escalate. Prices of homes are high because
developers have always got what they wanted at the expense of the buyers.

Sixth, when foreign monies are allowed to pour in indiscriminately: When have an excessive
amount of foreign money going into our land and property sector, it's almost certain the locals,
including even the center class, wouldn't be ready to compete. Probably the purchasing power of

22
5 per cent of rich Chinese is greater than the entire bourgeoisie of this country. [ CITATION
TKC17 \l 1033 ]

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Stanisljevic, J. (2018, June 22). A traveller’s guide to airline price discrimination. Retrieved
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