Managerial Economics Study Material with Solved Assignments

This study material on Managerial Economics includes marginal analysis, presentation of estimates, profit maximization, and social responsibility. It also provides a table of contents, references, and a summary of the content covered. The subject is BE274 Managerial Economics, and the course code, course name, and college/university are not mentioned.

BE274 MANAGERIAL
ECONOMICS

Table of Contents
PART – ONE........................................................................................................................................3
a) Marginal analysis and presentation of estimates (MB, TC, MC and NB)...................................3
PART – TWO........................................................................................................................................4
REFERENCES.....................................................................................................................................6

PART – ONE
a) Marginal analysis and presentation of estimates (MB, TC, MC and NB)
Determination of total cost
Total cost = additional labour hour cost + high energy cost
additional labour cost of £20 for every tray that has been no longer used = £20 * 5000 = 100000
+ higher energy costs = 500 / 100 * 5000 = £25000
therefore, total cost at this level of trays reduction = 100000 + 25000 = £155000
Number of
trays used
Number of
trays no
longer used
Total cost
Savings or
total benefit
Total costs Marginal
cost
Marginal
benefit
Total net
benefit
15000 5000 100000 125000 - - -25000
14000 6000 190000 150000 25000 90000 40000
13000 7000 270000 175000 25000 80000 95000
12000 8000 340000 200000 25000 70000 140000
11000 9000 400000 225000 25000 60000 175000
10000 10000 450000 250000 25000 50000 200000
9000 11000 490000 275000 25000 40000 215000
8000 12000 520000 300000 25000 30000 220000
7000 13000 540000 325000 25000 20000 215000
6000 14000 550000 350000 25000 10000 200000
b) The optimum level of activity determined here is the usage of 8000 trays where reduction in the
usage of number of trays that are no longer in use is 12000.
c) The reason for choosing the optimum level of activity at 8000 usage of trays and 12000 reduction
in the usage of number of trays is that, at this point marginal benefit is higher than marginal cost
and also, the total net benefit is maximum at this level of activity. After this level, there has been
reduction in the total net benefit due to higher maginal cost than marginal benefit. Also, University's
sustainability Sub-Strategy is being satisfied at this point because higher marginal cost than
marginal benefit indicates that the energy costs are rising and thus is affecting the environmental
sustainability.

PART – TWO
a) Profit maximization is considered as one of the most important goals of an organisation, where
greater emphasis is being given on earning maximum possible profits and the lesser emphasis is
being to other aspects of the business like social and economic well-being, retaining customer for
long and other aspects or goals of the business. However, this objective of maximizing profit may
not get fulfilled for many firms due to the following reasons:
 Non – accomplishment of long term sustainable goals: While concentrating on increasing
profits for the short term, many firms generally undermines the importance of fulfilling
sustainable goals that are having longer and greater impact over the profitability of the firms
(Viswanath, 2017). For instance, natural resources and environment related goals such as
saving energy costs, reducing carbon impact or greenhouse effect, etc are undermined which
have a favourable long term impact over the profitability of the firm in an attempt to
maximise profits in the short term. Therefore, short term profit maximising goals results in
reduced profit within the longer term and thus firms remain deprived of maximising profit in
the long run. Many times it has been seen that firm's reduces the quality of thier production
in an attempt to maximise profits which in turn, results in upset customers, hurting brand
image and allows competitors to steal a firm's business or market share. Accordingly, long
term profitability gets hurted.
 Low quality product: In an attempt to earn profit in short term, firms or producers reduces
the quality of thier product where they resort to using poor quality raw materials and
resources, so that their overall costs can be reduced and profitability can be enhanced
(Anning, 2018). This act of firm's management results in enough cost savings in the short
run, however, it leads to poor profitability in the long run due to compromising quality of
products. This is the another reason for which the firms are not able to maximize thier
profits sustainably.
 Poor employee training: When employees are not trained enough to produce profitably for
the organisation, then it leads to poor productivity, efficiency and effectiveness of employees
within the organisation. This results in higher operating costs for the firms and thus
profitability gets reduced to a great extent. Therefore, employee training is of great
importance for a firm aiming to maximise its profitability in long run without which its
survival is not possible.
 Producing at a level below or above the optimum level: When the firm is not operating at
an optimum level, this leads to loosing potential amount of profits due to incurring higher
costs resulting from non – optimum level operations (Nadar and Vijayan, 2020). For
instance, when marginal costs are higher than marginal benefits, this is not the level at which
the firms should operate rather than this, it must determine the optimum level at which
marginal benefits are higher than the marginal costs. This indicates increasing total and net
benefits and accordingly, firms could be able to maximise its profitability. However, non –
optimum level of operations results in higher costs for the firms and thus, these firms are not
able to maximize their profitability.
b) Profit maximisation is the basic goal of every business and meeting social responsibility is the
one way through which profit can be maximised. If the society is happy and satisfied with the
conduct and contribution of firms within the society, then they may aids in generating higher

revenue for the firms and accodingly, highrt ptofitability in the long run.
If firms take on more social responsibilities, then they are able to attract more and more
market share by building their good image in the eyes of society (Purnomo, 2021). This results in
greater revenue and profits for the business. So, at one side it can be said that taking on more social
responsibility is greatly helpful in meeting the objective of profit maximization of firms.
On the other hand, taking on more social responsibilities means compromising with the
amount of profits, as when more social responsibilities are carried out, it leads to lesser availability
of profits for the firms in distributing it in the form of dividends to thier end stockholders. So, in
these circumstances when firms are in a condition where by meeting its social responsibility it is not
able to satisfy its shareholders, then it would be advisable to reduce the contribution towards the
social welfare and retain the extra profitability or liquidity of the firm for maximizing profits.
It is also being said that with social responsibility comes profitability. This is true because if
firms goes for maximizing thier profits through producing and operating efficiently by not harming
environmental resources through sustainable strategies, then it would results in meeting society's
expectation of reducing energy consumption and natural resources (Samuelson, Marks and
Zagorsky, 2021). This in turn results in lower cost of operations and businesses can accordingly
make more profits and maximize it. Also, when more of the social responsibilities are carried out by
a firm, it would results in getting rid of governmental regulations and interventions which results in
savings legal expenses in the event of non-fulfillment of laws and regulations.
Therefore, on the basis of above discussion it can be concluded that firms with profit
maximization motive could engage in taking on more social responsibilities of using society's
resources optimally and conducting its activities ethically. It has been identified that profit
maximization contibutes to the social welfare indirectly in the way where maximum profits is
associated with efficient allocation and utilisation of resources and this in turn take of social and
economic welfare.

REFERENCES
Samuelson, W. F., Marks, S. G. and Zagorsky, J. L., 2021. Managerial economics. John Wiley &
Sons.
Purnomo, J. H., 2021. MANAGERIAL ECONOMICS: UNDERSTANDING ECONOMIC
OPTIMIZATION. Al Hikmah: Jurnal Studi Keislaman, 11(2), pp.200-218.
Nadar, E. N. and Vijayan, S., 2020. Managerial economics. PHI Learning Pvt. Ltd..
Anning, F., 2018. A Strategic Assessment of Managerial Economics in Perspective. Available at
SSRN 3236520.
Viswanath, N. S., 2017. Managerial Economics. DHARANA-Bhavan's International Journal of
Business, 4(1), pp.61-63.