Managerial Economics Project Report

The assignment provides a detailed analysis of managerial economics and its practical applications. It explores the inverse relationship between demand and supply, the impact of price discrimination, and the importance of cost estimation functions in business operations. The report also discusses various costing techniques and their implications on sales and revenue generation.

MANAGERIAL
ECONOMICS

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
1.Fixed Cost and Marginal Cost.................................................................................................1
2. Measuring problems with straight line equation.....................................................................2
3. Price discrimination and profit analysis..................................................................................5
4. Cost and profitability analysis as per operations held in Manchester.....................................6
5. Multiple Choice Question.......................................................................................................8
6. Multiple Choice Question.......................................................................................................8
7. Multiple Choice Question.......................................................................................................9
8. Multiple Choice Question.......................................................................................................9
9. Multiple Choice Question.......................................................................................................9
10. Multiple Choice Questions....................................................................................................9
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Managerial economics deals with application of all economic concepts, tools, and
methods for solving practical problems (Hirschey, 2016). This helps in taking decision making
of manager and also acts as link between theory and practice. With the help of managerial
economic the manager can take decisions regarding demand, production and price of any product
(Froeb and et.al., 2015). This Project report states that about the demand and supply of boots that
had been manufactured by Toot Boot. All concepts regarding demand and supply had been
included in this project. This project report consists of calculation of fixed and marginal in
different scenarios. The total cost and total average cost of boots had also been presented in this
project through cost functions that had been provided. This project report also provides
relationship between marginal revenue and marginal costs. In this project there is analysis
regarding if they offer delivery services in different states of United Kingdom.
MAIN BODY
1.Fixed Cost and Marginal Cost
Fixed Cost is an expense that does not changes with change in production of units and
even can't be avoided even if there is no production (Rifkin, 2014). The examples of fixed cost
are Rent, salaries, utilities, property taxes, insurance etc.
The Fixed cost of Toot Boot for the cost equation C(Q)=8000+100Q is 8000, as fixed cost does
not change with change in production of units.
Marginal Cost is the incremental costs that are incurred while producing additional goods
and services (Thirumalai, Sree and Gannu, 2017). Marginal Costs is calculated by taking changes
in cost of production that had been divided by change in quantity of goods produced.
Marginal cost= C(Q)-C(Q-1)
8000-(8000-1)
=1
Average cost= C(Q)/Q= F/Q+ VC(Q)/Q
=8000/35.63+ 100/35.63
=227.34
Average Variable cost= VC(Q)/Q
1

100/35.63
=2.81
Marginal costs can be denoted as the change in opportunity costs in business which arises
as if fluctuations in quantity produced which is increased by one unit. Value of produced unit has
been considered rather than its alternative unit for input purposes. The cost of additional input
has been ascertained to determine expenses to be made for the next units. Thus, as per
considering the above listed table on which it can be said that, the average costs of the data base
have been analysed here which is 227.34 out of fixed cost and variable cost analysis. Similarly,
in relation with analysing the outcomes of average variable costs which had been determined as
2.81.
2. Measuring problems with straight line equation
A. Profit maximizing price and quantity:
Profit is maximised at the quantity where marginal revenue is equal to marginal cost.
Marginal Revenue of any company represents change in total revenue that is associated with an
additional unit of output and same as with the marginal cost as it is also change in total cost for
an additional unit of output (Shepherd, 2015).
So, as both marginal revenue and marginal cost determines total revenue and total costs
respectively. So, Toot Boot can determine marginal revenue and marginal cost by setting them
equal for maximization of total profits.
The Demand Curve of Toot Boot is-:
P = 1100 – 4Q
So total Revenue will be
TR=1100Q – 4Q2
So total Cost Equation will be
TC=8000 + 100Q
Step 1: Determination of Marginal Revenue by derivating total revenue with respect of quantity
MR = dTR/dq
=1100-2Q
Step 2: Analysing the marginal cost by derivating TC with quantity.
2

MC= dTC/dq
=100+4q
Step 3: For solving Q, then MR=MC
1100-2q= 100+4q
=1000=6q
Q= 1000/6
= 166.67
Step 4: Analysing the price through demand equation which will be by substituting 166.67 for Q
P= 1100-4q
=1100-4(166.67)
=333.32
Interpretation:
In relation with analysing the costs as per considering the demand curve of toot boot
there have been demonstration of various cost analysis techniques. Therefore, the P= 1100- 4Q,
on which revenue equation had been determined as TR= 1100Q -4Q square. Similarly, the Total
cost has been analysed here is TC= 8000+1000Q + 16Q^2. Along with such equation there had
been determination revenue of the Toot Boot with respect to the sales of boots against quantity
and prices, there have been implication of various steps which helped in analysing the outcomes.
On the basis of such analysis, where demonstration of marginal; revenue had been made which
ascertains MR= dTR/dq which is 1100-2Q (square root of 4Q).
Similarly, analysis of the marginal cost had been determined here that is MC= dTC/dq
which is 100+4Q. Moreover, in relation with solving the quantity where marginal revenue has to
be equalised with the marginal costs. It represents the outcomes as 1100-2q= 100+4q and that
demonstrate the quantity of the boots which are being demanded are 166.67. Therefore, the profit
maximizing quantity is 166.67 with the price of 333.32 respectively (HOW TO CALCULATE
MAXIMUM PROFIT IN A MONOPOLY, 2017).
B. Toot Boot’s annual profit and average cost:
TR= P*Q
=333.32 *166.67
=55553.37
TC= ATC*Q (ATC= TC/Q)
3

= (100/166.67) *166.67
=100
Profit= (P*Q) – (ATC*Q)
=(P-ATC) *Q
= (333.32-0.60) *166.67
=55454.44
Interpretation:
As per analysing the annual profit and average costs of the data base which is of Toot
Boot’s profitability in operations. Total revenue has been analysed as P*Q which had been
demonstrated as multiplying the analysed price and quantity from the operations such as
333.32*166.67. It presents the total revenue as 55553.37 respectively. Moreover, the total costs
had been analysed here which is had been determined through taking into consideration of
Average total costs. thus, the mean TC is derived from deducting the quantity from total costs
which presents the total costs as 100 respectively. However, profit had been analysed through
such assessment it can be through deducting the total costs from total revenue. Therefore, in this
respect there had been generation of profit around 55454.44 (How to calculate economic profit,
2017).
C. Consumer surplus:
∫₀35.63= Upper function – lower function)
= (35.63-0)
∫₀35.63 (-4Q+ 1100) – (333.32) dq
= -31.63q2+1100q- 333.32qǀ₀35.63
[-31.63(35.63)2+ 1100(35.63) – 333.32(35.63)] – [-31.63(0)2+ 1100(0) – 333.32(0)]
= [-12494.6] – [0]
=12494.6
Interpretation:
On the basis of above measurement, the consumer surplus had been analysed as
implicating measurements through prices and quantity. There are upper and lower function
which will bring the appropriate analysis towards the outcomes. The upper function is 35.63
while lower as 0. In respect with the quantity offered by Toot boot on which consumer surplus
had been analysed as 12494.6 respectively (Consumer and Producer Surplus, 2018).
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D. Profit of Toot Boot’s:
The Demand Curve of Toot Boot is-:
P = 1100 – 4Q
So total Revenue will be
TR=1100Q – 4Q2
So total Cost Equation will be
TC=9500 + 100Q+16Q2
Step 1: Determination of Marginal Revenue by derivating total revenue with respect of quantity
MR = dTR/dq
=1100-2Q
Step 2: Analysing the marginal cost by derivating TC with quantity.
MC= dTC/dq
=100+4q
Step 3: For solving Q, then MR=MC
1100-2q= 100+4q
=1000=6q
Q= 1000/6
= 166.67
Step 4: Analysing the price through demand equation which will be by substituting 166.67 for Q
P= 1100-4q
=1100-4 * (166.67)
=333.32
Therefore, the profit maximizing quantity is 166.67 with the price of 333.32 respectively
3. Price discrimination and profit analysis
A. Price should be charged for shipping boots to Edinburgh:
No price discrimination: P= 333.32, Q= 166.67, Profit= (333.32-4)
*166.67
= 54887.76
Price discrimination: P= 343.32 (333.32+10), Q= 166.67, Profit =
5

(343.32-4) *166.67
= 56554.46
Total profit = 54887.76 + 56554.46
= 111442.22
Interpretation:
In accordance with the above determined profits through price discrimination where
London and Edinburgh have been determined through the changes in the prices were made.
Revenue had been gathered by Toot Boot as per no price discrimination which ascertains the
price of 333.32, quantity of 166.67 respectively. Therefore, on which the profit had been
analysed as multiplying the quantity with price minus variable cost such as (333.32-4) *166.67.
Moreover, it brings the outcomes as the revenue will be retained by the firm on as of 54887.7
from no price discrimination.
On the other side, as per considering the price discrimination on sales made in Edinburgh
which is of 10 pounds of ship charges which represent the total price is of 343.32 and quantity of
166.67. Moreover, the profit had been gathered through price discrimination are around
56554.46. As per summing up both the profits the overall profit had been obtained through such
analysis are 111442.22 respectively.
B. Fraction of shipping cost:
P= 343.32 (333.32+10)
Moreover, the costs will be added to the overall prices charged on the boots which were
being sold in Edinburgh. Therefore, consumer will have to pay 342.32 of price of the quantity
they will be acquire.
4. Cost and profitability analysis as per operations held in Manchester
A. Price discrimination in London and Manchester:
Manchester= P= 700-2Q
Cm (Q) = 9500 + 100Qm
Cl(Q) = 9500 + 100 Ql
The Demand Curve of Toot Boot is-:
P = 700 – 2Q
So total Revenue will be
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TR=700Q – 2Q2
So total Cost Equation will be
TCm=9500 + 100Qm+4Qm2
Step 1: Determination of Marginal Revenue by derivating total revenue with respect of quantity
MRm = dTRm/dq
=700-1Q
Step 2: Analysing the marginal cost by derivating TC with quantity.
MC= dTC/dq
=100+2q
Step 3: For solving Q, then MR=MC
700-1q= 100+2q
=600=3q
Q= 600/3
= 200
Step 4: Analysing the price through demand equation which will be by substituting 200 for Q
P= 700-2q
=700-2(200)
=300
Interpretation:
In determining the cost of profitability as per changes in location such as London and
Manchester. Whereas, Manchester as value of P= 700-2q as cost equation and functional
equation had been analysed as C(Q)= 9500+ 100Q. However, on which the total revenue has
been analysed for 700Q-2Q square and costs as 9500+100Q+4Q square respectively. Moreover,
there are various operational practices which have been done and managed through having better
assessment of operational practices. Additionally, there have been determination of quantity as
200 as well as price as 300. Therefore, the profit maximizing quantity is 200 with the price of
300 respectively
B. Total profit:
No price discrimination: P= 333.32, Q= 166.67, Profit= (333.32-2)
*166.67
= 55221.1
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Price discrimination: P= 300, Q= 200, Profit = (300-2) *200
= 59600
Total profit = 55221.1+ 59600
= 114821.1
C. Profit analysis for Toot Boot’s:
Manchester and London equal prices
No price discrimination: P= 300, Q= 166.67, Profit = (300-2) *166.67
= 49667.66
Price discrimination: P= 300, Q= 200, Profit = (300-2) *200
= 59600
Total profit = 49667.66+ 59600
= 109267.7
D. Pricing differences:
As per considering the analysis where the prices re different in both cities the profit
retained through price discrimination was around 114821.1. On the other side, as per considering
there is no discrimination in the prices as the prices of both cities will be equal or same. Thus, in
respect with such aspects only quantity of boots had been varied here. Thus, the overall profit
had been retained by Toot Boot as 109267.7. therefore, there has been differences in the profit of
around 5553.4 pounds. In context with such analysis it can be said that, price discrimination will
be fruitful in bringing higher returns to the firm. Thus, it will reflect a rise in profitability.
5. Multiple Choice Question
Answer is Option (a). A shift in the supply curve of Vitamin E and a shift in the demand
curve of Vitamin E as because shift in demand curve and supply curve arises when there is
change in quantity demanded and supplied of goods even prices remains same.
6. Multiple Choice Question
Answer is Option (c). A shift in (or leftwards) of the demand curve for sugar as because
these goods are complimentary to each other as increase in price of Coffee will result in leftward
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movement along the demand curve of coffee and cause the demand curve of Sugar to shift in or
lo leftwards.
7. Multiple Choice Question
Answer is Option (a). X and Y are substitutes. As because they have positive cross
elasticity of demand and when the price of that product increases it will lead to increase in sale of
other goods.
8. Multiple Choice Question
Answer is Option (c). Both i and ii. That As the price of a good falls, more of it is
demanded and consumers incomes rise, more of a good is demanded.
9. Multiple Choice Question
Answer is Option (a). The quantity that consumers will buy at any given price.
10. Multiple Choice Questions
Answer is Option (d). The quantity of palladium increases, the effect on price is
ambiguous.
CONCLUSION
This project report concludes managerial economics is very helpful in decision making of
managers. By Summing up this economics project it states that there is inverse relation between
demand and supply of products and also that if there is rise in price of substitute goods
automatically there will be increase in demand of another product. Further, there had been
implication of various costing techniques as per considering the costing equation and analyses of
the data base. Which have represented the adequate outcomes based on cost to be levied on the
Toot Boot’s sales in various locations. Moreover, it will be suggested to the professionals of this
industry that they must implicate price discrimination technique in practices which will bring
them higher returns from sales. In addition, there will be sustainable rise in the profitability and
revenue generation of the firm which will help in bringing appropriate operational gains.
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REFERENCES
Books and Journals
Froeb, L.M., and et.al. 2015. Managerial Economics. Cengage learning.
Giri, R.N., Mondal, S.K. and Maiti, M. 2017. Bundle pricing strategies for two complementary
products with different channel powers. Annals of Operations Research. pp.1-25
Hirschey, M. 2016. Managerial economics. Cengage Learning.
Namey, E., and et.al. 2016. Evaluating bang for the buck: A cost-effectiveness comparison
between individual interviews and focus groups based on thematic saturation levels.
American Journal of Evaluation. 37(3). pp.425-440.
Rifkin, J., 2014. The zero marginal cost society: The internet of things, the collaborative
commons, and the eclipse of capitalism. St. Martin's Press.
Ruttan, V. and Thirtle, C. 2014. The role of demand and supply in the generation and diffusion
of technical change. Routledge.
Schill, W.P., Pahle, M. and Gambardella, C. 2017. Start-up costs of thermal power plants in
markets with increasing shares of variable renewable generation. Nature Energy. 2(6).
p.17050
Shepherd, R.W. 2015. Theory of cost and production functions . Princeton University Press.
Thirumalai, C. Sree, K.S. and Gannu, H. 2017, April. Analysis of cost estimation function for
facebook web click data. In Electronics, Communication and Aerospace Technology
(ICECA), 2017 International conference (Vol. 2, pp. 172-175). IEEE.
ONLINE
How to calculate economic profit. 2017. [Online]. Available through :<
https://theincidentaleconomist.com/wordpress/about/about-austin/how-to-calculate-
economic-profit/>.
HOW TO CALCULATE MAXIMUM PROFIT IN A MONOPOLY. 2017. [Online]. Available
through :< https://www.dummies.com/education/economics/how-to-calculate-maximum-
profit-in-a-monopoly/ >.
PDF
Consumer and Producer Surplus. 2018. [PDF]. Available through :<
http://www.math.vt.edu/people/mcquain/csps.pdf>.
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