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    ME Assignment

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    This document outlines an individual assignment for MBA students at Bule Hora University, focusing on managerial economics. The assignment consists of two parts: a case analysis on demand elasticity and price reduction, and a written assignment on cost, production, and supply analysis. Students are required to submit their work by specified deadlines in December 2017.

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    ME Assignment

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    tesfayeguji
    1 views3 pages
    This document outlines an individual assignment for MBA students at Bule Hora University, focusing on managerial economics. The assignment consists of two parts: a case analysis on demand elasticity and price reduction, and a written assignment on cost, production, and supply analysis. Students are required to submit their work by specified deadlines in December 2017.

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    This document outlines an individual assignment for MBA students at Bule Hora University, focusing on managerial economics. The assignment consists of two parts: a case analysis on demand elasticity and price reduction, and a written assignment on cost, production, and supply analysis. Students are required to submit their work by specified deadlines in December 2017.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    1 views3 pages

    ME Assignment

    Uploaded by

    tesfayeguji
    This document outlines an individual assignment for MBA students at Bule Hora University, focusing on managerial economics. The assignment consists of two parts: a case analysis on demand elasticity and price reduction, and a written assignment on cost, production, and supply analysis. Students are required to submit their work by specified deadlines in December 2017.

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    Bule Hora University

    Faculty of Business and Economics


    Department of Management
    MBA I – YEAR
    Individual Assignment: Managerial Economics

    Assignment – 1: (Marks: 15)


    Information: All students are supposed to do the assignment by analyzing the following case
    (given below) and submit it up to December 21st, 2017.

    This assignment consists of two parts.

    Part – I: Case Analysis (10 Marks)

    Part – II: Presentation (5 Marks)

    Case: Demand Elasticity and Price Reduction


    In November 1975, Mr. Kumar, the Managing Director of Standard Motors Limited.
    Addis Ababa, called a conference of his top aides to discuss the situation arising out of the fall in
    demand for cars of the company as a result of recession in automobile industry. Present at the
    conference were Mr. Ranjith, Sales Manager, Mr. Ajay, the Cost Accountant, and Mr. Anil, the
    Business Economist of the company. The sales manager, Mr. Ranjith, quoted certain demand
    analysis for new automobiles and pointed out that the price-elasticities of demand for new
    automobiles have been estimated to range over 1.5 to 1.7. According to him, if we have the
    elasticity coefficient as 1.5, this would mean that the increased demand will be one and one –
    half times as great as the decreased price, or in other words a 1.0 per cent decrease in price
    would produce a 1.5 per cent increase in demand. At the existing price of Br. 25000 per car, he
    estimated that sales volume at 1000 cars. He, therefore, calculated that if the price is reduced
    from Br. 25000 to Br. 24000 the volume and revenue will be affected as follows:
    A price reduction from Br. 25000 to Br. 24000 is 4 per cent. With a demand elasticity of
    1.5 this would indicate a resulting increase in sales of 6 per cent. (i.e., 1.5 x 4%). So, volume
    would be increased from 1000 to 1060. The sales revenue would also go up as follows:
    At a price of Br. 25000 1000 cars x 25000 = 25000000
    At a price of Br. 24000 1060 cars x 24000 = 25440000

    1
    Thus, revenue will be increased by Br. 440000.
    He pointed out that as price reduction by one producer will be met by others, he is
    keeping in view the effect of a general price change by all sellers and not considering any
    relative advantage.
    The business economist was, however, Chary in accepting the sales manager’s argument. He
    consulted the cost accountant who gave the following data:
    Average total cost = Br. 23000 per car
    Total variable cost = Br. 18400000
    On the basis of these data, he made the following computations:
    Birrs.
    Fixed cost 4600000
    Variable cost (18400 x 1060) 19504000
    -------------------
    Total cost 24104000
    ------------------
    Profits were determined thus:
    Revenue 25440000
    Cost 24104000
    -----------------
    Proft 1336000
    -----------------
    Thus the profit would decline from Br. 2000000 to Br. 1336000. These results came as a
    surprise to the Sales Manager.
    Questions:
    1. What is the change in total revenue resulting from a price reduction of Br. 1000?
    2. The price reduction of Br. 1000 has reduced revenue per car by Br. 1000. How would it
    change the cost per car? What will average total cost be at the new sales volume?
    3. What do you conclude from the calculation made by the business economist?
    4. “In general, the higher the level of total fixed cost relative to total cost (or the lower the
    level of total variable cost relative to total cost), the higher the price elasticity of demand
    must be in order to justify a price reduction, and vice-versa.” Do you agree? If so, why?

    2
    Assignment – 2: (Marks: 15)
    Information: All students are supposed to do this assignment by writing the following topics
    and submit it in writing up to December 25th, 2017.

    Topic: COST, PRODUCTION AND SUPPLY ANALYSIS (Chapter - III)

    1. Cost Concepts, Classifications and Determinants


    2. Cost – Output Relationship
    3. Economies and Diseconomies of Scale
    4. Cost Control and Cost Reduction
    5. Production Functions
    6. Supply Analysis

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