Economics Assignment MBA

This document provides solutions for Economics assignments for MBA students. It covers topics such as demand and supply functions, equilibrium price, price elasticity, total cost, revenue generation, parking rates, external effects of free parking, change in consumer surplus, and rational of manager. The assignments are aimed at improving understanding of economic concepts and their practical applications.

Running head: Economics assignment MBA
Economics assignment MBA
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Economics assignment MBA
Table of Contents
Assignment 1...................................................................................................................................2
Assignment 2...................................................................................................................................6
Assignment 3...................................................................................................................................9
Assignment 4.................................................................................................................................11

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Economics assignment MBA
Assignment 1
Qs = 80P -20
Qd = -90P + 405
P = price in euro per kilogram.
Qs and Qd measure in 1000 tons of butter
(1) Significance of negative sign in Qd
In the above equation, the negative sign in the demand function is signifying the fact that the
demand is having negative relationship with the price of the butter. The negative relationship is
relevant from the definition of the demand law. The law clearly mentions the fact that other
factors remaining constant (Ceteris Peribus), the demand of any component will be negatively
depending on the price of the commodity. The demand equation is showing the fact that Qd is
depending on the price. In the above equation, one unit change in the price will affect the
demand of the butter by 90 times and the affect will be in negative direction.
(2) Explain the negative sign in the supply function
The supply function is showing the positive relationship with the price. The positive
relationship among the quantity supplied and the price is coming from the law of supply. The
law says that other factors remaining constant (Ceteris Peribus) the supply of the product will be
depending positively on the price of the commodities. It is important in the sense that the
negative sign in the quantity-supplied equation is the constant term and that value is to deducted
in order to get the value of the supply.
(3) Equilibrium price
In order to determine the equilibrium price of the butter the quantity demanded and quantity
supplied function is equated.

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Economics assignment MBA
80p-20=-90p+405
170P = 425
P= 425/170 = 2.5 in Euro per KG
4) Equilibrium volume in million
Putting the value of price =2.5 in the quantity demanded function we will get the equilibrium.
80*(2.5)-20= 200-20= 180 million KG.
5) Calculation of price elasticity
In order to calculate the price elasticity the derivative of the Qd is being determined.
Qd= -90P+405
90P= 405-Qd
P= 405/90-1/90Qd
The point elasticity formula is and the point elasticity is -90*2.5/180 is -1.25. The
price elasticity is showing the highly elastic in nature and is negatively in nature.
6) Eps<Epd
The absolute value of the price elasticity of supply is less than the price elasticity of
demand. This is important in the sense that price elasticity of supply is going to influence the
total revenue of the firm, as the produces will supply more if the price elasticity of supply is
elastic and more than one. On the other hand, the price elasticity of demand will identify the
degree of responsiveness that is present within the consumer.

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Economics assignment MBA
7) Total Cost of EU at the intervention price of 3.50
When the intervening price of the EU is at € 3.50 the total cost can be determined in the
following way. The demand function is Qd=-90P+405. Now putting the intervention price in the
demand function we get Q=90. Now Total Profit (TP) = Total Revenue (TR)-Total cost (TC).
Now since the intervention price is given thus, it is the price ceiling and price cannot go above €
3.50, thus profit function will depend on quantity. Putting the value of price in the demand
function, Q= -90*3.50+405 and Q= 90. Total profit is 90*3.5 and TR = 3.50Q-TC thus
TC=3.5Q-315 where TR =90*3.50 =315

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Economics assignment MBA
8. Quantity produced for lowest possible cost price
From the given diagram, the lowest possible cost price is €3. At this point of cost, the
quantity that is produced by EU is 80,000 kilo of butter. Now the total profit that the producer is
earning at this particular point of cost is €24. When the firm is opting for the lowest cost of
production then from the above diagram the firm will look at the point where the ATC curve is
having the lowest point. Since the ATC curve is U shaped. This means, the curve is falling upto a
certain point and after the point, the curve will rise. This is because in the long- run there is no
concept of fixed costs and all the costs that are being associated with the production of goods are
the variable costs and this is the main reason behind the U shape of ATC curve. In the given
figure, the horizontal axis is measuring the quantity of goods that will be produced. The vertical
axis is showing the costs and revenue that the firm will get.
9. Quantity produced at the intervention price to maximize profit
If the producer wants to produce the kilos of butter in the intervention price then the
quantity that is produced by the individual producer will not be able to optimize the price and
quantity of the goods that will be produced. In the intervention price of € 3.50 euro per kg butter
the maximum quantity that is to be produced by the producer is 90kg.
10. Revenue generation for the given firm
The revenue that has been earned by the firm taking the situation in problem 9 is € 3.50*60,000
and TR = €210,000.

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Economics assignment MBA
Assignment 2
The demand of the parking space and the price of ticket is reflected by the following equation
Qd= -2p+10
P is the rate of tariff in the parking area.
Fixed cost of the parking garage for 1 hour is €6 and the marginal cost of parking per hour is
€0.80
Now since the total hours of parking facility is not known thus the number of parking hours is 24
hours.
1. Calculation of parking rate
TC= VC+FC and the variable cost is 0.80*24= €19.2 +6 =€25.2
Now Q= -2p+10 2p= 10-Q. from the above equation P= 5-Q/2
TR = 5Q-Q^2/2 thus MR= 5-Q
Now equating MR =MC we get 5-Q= 0.80
Or Q= 4.2 and P= 2.9
The Q is the demand function. Moreover, using the transportation of function, the demand
fuction is replaced to a function in terms of P. The total revenue or TR is the price *quantity. The
marginal revenue or MR is the firsts order derivative of the total revenue function with respect to
quantity. Marginal cost or MC is given as €0.80.
2. Calculation of profit per hour at the rate of € 2.9
The profit function is Total revenue (TR)-Total Cost (TC). Now the total cost or TC is composed
of total variable cost and total fixed costs ie TC = TVC +TFC. Now since the marginal cost is
change in total cost with change in one unit of change in quantity produced. Now total costs can
be determined by multiplying the marginal costs by quantity. Thus TVC= marginal cost *cost

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Economics assignment MBA
and TVC= 0.8*4.2 and TC = 3.36. Now TC= 3.36+6 (since fixed cost is given as $6) and TC=
$9.36. On the other hand, TR = 4.2*2.9 and TR = 12.18. Thus total profit is $ (12.18-9.36)
=$2.82
3. External effect of free parking in the neighborhood
Due to the incorporation of free parking, the increase in nuisance is happening in the
local areas. Moreover, the incorporation of the free parking has enabled the development of the
resource utilization. This will automatically increase the social dead weight loss and the
neighborhood will not be able to enjoy the free parking area. This will definitely increase the
social cost of the neighborhood. In order to increase the efficiency in the economy, it is
important for the economy to indulge in effective allocation of resources. However, it is
important in the sense that huge generation of negative externality is going to build over the
economy. On the other hand, through the improvement in the external and internal economy, the
free parking in the neighborhood is actually going to indulge the development of high chaotic
situations that will not help in the improvement of the economy. Moreover, through the
importance of the free parking the economy will lose the effective potentiality of the economy.
This is important in the sense that through the improvement in the economic situation and
minimization in the negative externality is going to increase the economy. Development of free
parking is going to increase the improvement in the economic sense and will definitely affect the
resource distribution of the economy.
In this situation, the development of the negative externality will not be allowing in the
improvement in the economic situations. This will allow the incorporation of negative externality
is going to increase the Marginal private benefit and will increase the Marginal social costs.
4. Change in consumer surplus per hour due to the introduction of the maximum rate

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Economics assignment MBA
In responding to this situation, the local municipality has enabled the tax reduction of €2
and this is a fixed costs. This is one of the important aspect in the sense that now with the
improvisation of this fixed tariff will be helping the incorporation of decrease in the price.
Previously, the parking areas would have been asking marginal tariff and was implementing
negative externality as the price was being calculated at the hourly basis and was charging price
on hourly basis. Moreover, due to this the fixed price of parking the consumer will have to spend
less money. On the other hand, the consumer surplus will be showing a negative value.
Initially when the tariff was €2.90 then the consumer surplus was as followed.
CS =1/2*Qd*∆Pd, where Qd= quantity demanded in the equilibrium price.
∆P = Pmax-Pd
Pmax = price the consumer is willing
Pd= price in equilibrium
P max =2.9-0.8=2.1
CS = -1.68
Coming to the new situation, the CS = -2.7, the consumer surplus is decreasing.
5) Rational of manager
This is important in the sense that during the weekend, the rush on shopping is more and
during the weekend, more number of cars will be coming and will utilize the parking space.
Since the price elasticity of demand is highly elastic in nature thus during the weekend, the
parking areas will be gaining more revenue. Rational of the manager is aligning with the thinking
that it will definitely increase the resource utilization and will minimize the negative externality.
Through the utilization of the money and price elasticity, the manager will be aiming to increase
the producer surplus. On the other hand, this will also have an impact of total production ability.

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Economics assignment MBA
The consumer if charged with increasing price they will shift the parking place. On the other
hand, the shift in the parking place will be shifted that will hamper the environment as many cars
will be lining the parking area and they will create both noise and air pollution.
Assignment 3
1) In the above diagram, the private cost of the water is considered to be at the point where
the MC curve is intersecting the MSB. The position of 400 gallons per day will be
provided to the economy at the price of 20 cents per gallon. This is important in the sense
that at the intersection point of MC and MSB. The marginal social benefit curve is
showing the benefit that the society will be getting if private sectors are allowed to the
business. At this point of time, the private cost and the social cost will not affect each
other. Producing quantities more than that will hamper the innovation and drilling of
more water from the spring will hamper social business.

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Economics assignment MBA
2) In order to identify the overall efficiency of the economy, the point where the MSC and
MSB will intersect will give the efficiency level of the quantity supplied to the economy
and the price of the products will be efficient. In the diagram above, the price of the water
gallon will be 30 cents per gallon and the quantity will be 200 gallons per day. The
amount is less compared with the private business because of the fact that private
companies will be aiming to increase their profit maximization conditions, they will be
aiming to provide less quantities, and the price will be higher. In the above diagram, the
efficiency condition that is set by the economy is not going to be useful in the sense that
it will require more number of costs and the quantity supplied will be very low. This is
one of the important aspect in the sense that it will definitely increase the social
participation.
3) If the villagers set the quota then the amount will 200 and the value will be 20 cents per
gallon. This is because of the fact that the economy will be aiming to indulge the
development of non-misuse of resource. This will increase the government participation
and will allow the government to increase the production that will easily hamper the
innovation in the business. This is one of the important strategies in the sense that
government participation is going to help in the development of strategies that will
increase the innovation in the marketing of goods that is being done by the private
companies. Through the improvisation of better monitoring the economy will be aiming
to indulge the development of better policies and better strategies.

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Economics assignment MBA
Assignment 4
Medixtodecidefor
Type I Type II Type III
Pharmextodecidef
or
Type I A -200; -200 B 250; 300 C 200; 400
Type II D 300; 250 E -400; -400 F 250; 300
Type III G 400; 200 H 300; 250 I -300; -300
1. Investment in any type of the medicine will be sunk cots in the sense that the company
will not be able to understand the impact of medicine on the patient in the long run. In the
field of medicine, the impact on the patient is always doubtful as the impact of medicine
on the patient entirely depends on physical feasibility of the patient. Now coming to the
required level of competition within the industry by the two companies Pharmex and
Medix, the impact of the investment will entirely depend on the composition of the
medicines that Medix and Pharmex is going to incorporate in their medicines. Through
the development of medicines in a cheap price and making the availability of the
medicine is also a big concern. This is considered as sunk cost as the medical industry is
very volatile in nature and is very open to new markets.
2. Nash equilibrium is H (300,250) and F (250,300). These two output is important in the
sense that through this output both the parties will be getting benefit from the utilization
of the benefit that will definitely increase the Nash strategy that will allow the company
to indulge the development of the strategy. Now the process of the nash equilibrium can
be done by the following process.

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Economics assignment MBA
Payoff of Pharmex
If Medix plays the strategy of playing Type 1 then Pharmex will choose Type 111 as the
payoff in G>D>A. Now if Medix plays Type 11 then Pharmex will still choose Type 111 as
the payoff in H>B>E. Now if Medix plays type 111 then Pharmex will choose Type 11 as the
payoff in F>C>I
Payoff of Medix
If Pharmex is choosing type 1, Medix will choose type 111, as the payoff C>B>A. Now if
Pharmex is choosing type 11, Medix will choose type 111 as the payoff F>D>E. Now if
Pharmex is choosing type 111, Medix will choose type 11 as the payoff H>G>I. This is the
main reason why payoff H and F will be Nash equilibrium.
3. Pharmex will chose strategy 1 and strategy 2. This is important in the sense that Pharmex
will be looking to indulge the development of profit maximization. Now the company
will be aiming to maximize the profit and according to the Pareto optimization, theory no
party can be better off without making other party worse off. If Pharmex plays one
strategy then in order to improve their payoff, Medix will be looking to choose the set of
strategy that will maximize his payoff. He has three types of strategies available against
each strategy of Pharmex. Since Pharmex is the leader in this game, thus his move will
force Medix to choose strategies. If Pharmex choose type I, medicine then Medix will
choose type iii medicine. If Pharmex choose type, 11 medicine then Medix will still
choose type iii medicine. Now if Pharmex choose type iii medicine then Medix will
choose type i medicine. This is important in the sense that Medix will try to play safe
strategy to maximize their production and payoffs.

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Economics assignment MBA
4a) Pharmex will be taking dominant strategy and will be aiming to increase the
improvement in the decision tree. Pharmex is going to play a dominant strategy and Medix is
going to take follow strategy. This is more similar to stackleberg leader and follower
strategy. Pharmex will be taking ist step and Medix will follow the steps after that in order to
increase their payoff. The consequence is that if the Medix follows the payoff strategy then
they will be able to maximize their payoff. This is a game of three is to three Nash.
Nevertheless, the Pharmex is going to lead the strategy and Medix will follow the strategy. If
Pharmex is choosing type 1, Medix will choose type 111, as the payoff C>B>A. Now if
Pharmex is choosing type 11, Medix will choose type 111 as the payoff F>D>E. Now if
Pharmex is choosing type 111, Medix will choose type 11 as the payoff H>G>I. From the
above steps it is clear that Pharmex will be choosing his type of medicine will determine the
choice of medicines depending on the maximization of his payoff that is more important for
maximization of his profit and revenue.
4b) This is convincing to Medix in the sense that in order to maximize the payoff matrix and
they will be able to identify their own benefits in the sense that they will also willing to
identify the market strategy and will dominate the medicine market both in international and
domestic market.
5a. Advantage is having that patient will be gaining more benefit to the medicine. If both
manufactures launch different types of medicines in the same market then the patient will be
able to identify the substitution products. They will be able to get the medicines as per their
budget. However, the manufactures need to maintain the composition and should keep the
quality of the medicines intact so that patients do not get any side effects. They should get the

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Economics assignment MBA
same benefit from both medicine manufactures. The price should vary for both medicines but
the composition should remain same.
5b. Disadvantage of having this kind of medicine market will bring unnecessary corruption
and will induce establishment of monopoly kind of business. The seller will sell the products
as per the price that will be set by them. Sometimes the producers will make an artificial
demand by making the demand shortage if the customers are not willing to pay that price.

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Economics assignment MBA
Reference list
Bade, R. and Parkin, M., 2015. Foundations of microeconomics. Pearson.
Iossa, E. and Martimort, D., 2015. The simple microeconomics of public‐private
partnerships. Journal of Public Economic Theory, 17(1), pp.4-48.