Economics Assignment: Market Analysis, Demand, and Production

This comprehensive economics assignment delves into key economic concepts and their application in real-world scenarios. Part 1 examines the role of economic profits in market systems, requiring students to analyze a successful profit-making organization and the factors contributing to its profitability. It also explores the impact of crude oil price variations on gasoline prices, both globally and in Malaysia. Part 2 focuses on demand functions, with students estimating linear and non-linear relationships using provided data, conducting goodness-of-fit tests, and interpreting coefficients. Elasticity calculations are also required. Part 3 addresses production decisions, analyzing the relationship between crew size and fish caught, determining optimal crew sizes for maximizing total and average fish caught, and calculating optimal crew size to maximize profits. Part 4 applies economic theories to managerial decision-making, focusing on the Lumins Lamp Company and requiring students to derive revenue, cost, and profit functions, determine optimal output and price, and analyze market pricing behavior. Finally, Part 5 analyzes a case study on the mobile phone market, examining Motorola's Iridium, Nokia's product trends, and the competitive pressures imposed by Apple and Samsung smartphones, offering strategic advice to Nokia. This assignment assesses students' understanding of economic principles and their ability to apply these principles to analyze market dynamics and make informed business decisions.

EVALUATION
This assignment accounts for 60% of the total marks for the course and shall be assessed based on
the Rubrics attached.
You would be given feedback on the assignment before the Final Semester Examination commences.
PLAGIARISM: MARKS DEDUCTION
Warning: The submitted assignment will automatically undergo a similarity check. If plagiarism is
detected, marks would be deducted as follows:
No. % Similarity Group % of Mark Deduction
1 0 – 30 0
2 30.01 – 50 5
3 50.01 – 70 10
4 70.01 – 100 100
1
5000 words

ASSIGNMENT QUESTION
PART 1
PURPOSE:
The purpose of this assignment is to enable the students to enhance their knowledge on the
fundamental economic concepts such as profits, prices, inputs and outputs; and to use these
fundamental concepts to determine factors affecting demand for and supply of goods and services.
REQUIREMENT:
a. In any market systems, the role played by economic profits is crucial in assisting resource owner
to make optimal decisions. Not only the existence of profits, but the level of these profits will
determine the type and quantity of goods and services that will be produced and sold, which in
turn influence the resulting derived demand for resources. There are several theories of profit
which can explain how this happens.
You are required to select any successful profit-making organization and determine reasons for
the existence of profits in that organization.
(10 Marks)
b. The price variation in crude oil impacts the sentiments and hence the volatility in stock markets
all over the world. The world equilibrium price of gasoline fluctuates primarily because of spikes
and collapses in crude oil input prices caused at various times by supply disruptions and gluts,
increasing demand in developing countries, and speculation.
Does the above statement explain what happens to (i) the world price of gasoline (petrol) in
general and (ii) the price of petrol in Malaysia, in recent years? Support your answer with
appropriate facts and figures.
Are there any other factors that affect the price of petrol in Malaysia? Explain.
(10 Marks)
(TOTAL : 20 Marks)
2

PART 2
PURPOSE:
The purpose of this assignment question is to enhance the skill of the students to estimate demand
functions and to appreciate their usefulness in the real world.
REQUIREMENT:
You have been presented with the following data and asked to fit statistical demand functions:
PERIOD QUANTITY PRICE INCOME ADVERTISING
1 120 8.00 10 3
2 165 4.00 22 7
3 120 7.00 20 5
4 165 3.00 20 8
5 180 4.00 30 8
6 90 10.00 19 6
7 150 4.00 18 10.2
8 190 1.60 25 9.3
9 160 5.00 30 8
10 200 2.00 35 9.5
a. Linear Relationship
i. Identify the dependent and independent variables.
ii. Estimate a linear relationship between the dependent variable and all the independent
variables.
iii. What are the tests that you would use to determine the “goodness-of-fit” of the estimated
demand function? Conduct the tests and explain the results.
iv. Discuss the economic implications of the various coefficients.
v. Compute the price elasticity of demand and income elasticity of demand in period 10.
Elaborate your answers.
(15 Marks)
b. Non linear relationship.
i. Estimate a logarithmic form of the demand function.
ii. Is the estimated demand function “good”? Why or why not?
iii. Compare with the linear form above. Elaborate.
(15 Marks)
(TOTAL : 30 Marks)
3

PART 3
PURPOSE:
The purpose of this assignment question is to enable the students to conduct relevant analyses for
making optimal production decisions.
REQUIREMENT:
a. The amount of fish caught per week on a trawler is a function of the crew size assigned to
operate the boat. Based on past data, the following production schedule was developed:
CREW SIZE (NUMBER OF WORKERS) AMOUNT OF FISH CAUGHT PER WEEK (TONNES)
2 3
3 6
4 11
5 19
6 24
7 28
8 31
9 33
10 34
11 34
12 33
i. Over what ranges of workers are there
 Increasing returns,
 Constant returns,
 Decreasing returns, and
 Negative returns?
ii. How large a crew should be used if the trawler owner is interested in maximizing the total
amount of fish caught?
iii. How large a crew should be used if the trawler owner is interested in maximizing the
average amount of fish caught per worker?
(10 Marks)
b. Consider the above question again. Suppose the owner of the trawler can sell all the fish caught
for $75 per tonne and can hire as many crew members as desired by paying them $150 per
week. Assuming that the owner of the trawler is interested in maximizing profits, determine the
optimal crew size.
(5 Marks)
(TOTAL : 15 Marks)
4

PART 4
PURPOSE:
The purpose of this assignment question is to ensure that the students are able to apply their
knowledge on economic theories to determine optimisation points in aiding managerial decision-
making.
REQUIREMENT:
The Lumins Lamp Company, a producer of old-style oil lamps, estimated the following demand
function for its product:
Q = 120,000 – 10,000P
where Q is the quantity demanded per year and P is the price per lamp.
The firm’s fixed costs are $12,000 and variable costs are $1.50 per lamp.
a. Write an equation for the total revenue (TR) function in terms of Q.
b. Specify the marginal revenue function.
c. Write an equation for the total cost (TC) function in terms of Q.
d. Specify the marginal cost function.
e. Write an equation for total profits (π) in terms of Q. At what level of output (Q) are total profits
maximized? What price will be charged? What are total profits at this output level?
f. Check your answers in Part (e) by equating the marginal revenue and marginal cost functions,
determined in Parts (b) and (d), and solving for Q.
g. What model of market pricing behavior has been assumed in this problem?
(TOTAL : 15 Marks)
5

PART 5
PURPOSE:
The purpose of this assignment question is to ensure that the students are able to apply their
knowledge on economic theories in assesing current events in the competitive real world.
REQUIREMENT:
Web-Based Satellite Phones Displace Motorola’s Mobile Phone21 Motorola’s Iridium, a go-anywhere
mobile phone system that transmitted and received signals beamed down from 66 satellites, was
called “the eighth wonder of the world” by Motorola CEO Chris Galvin. However, at $1,500 for a
handset the size of a brick, consumers balked. Few business travelers concluded they needed the
security and reliability offered in remote corners of the globe such as Kathmandu or Lagos. As a
result, Motorola’s 25 percent historical market share in mobile phones declined steadily to 13
percent in 2001, and Motorola stock fell 16 percent from 1997 to 2001, during a period when the
S&P 500 was up 76 percent. For the business customer, RIM’s Blackberry was satellite
communication-based, much smaller and lighter, almost as secure, and much more mobile. For the
mass market, Nokia began designing web-enabled phones that could connect to local area networks
and eventually the Internet. Apple iPhones and Samsung Android phones then ushered in a new era
of smart phones.
Questions
a. Characterise the product space for mobile phones when Iridium began.
b. Elaborate on the trends Nokia pursued as it designed mobile phone products in the late 1990s.
(Refer to the Managerial Challenge at the beginning of this chapter)
c. What might a more proactive Motorola have done differently had it correctly perceived the
steps its rival Nokia would take?
d. Smart phones from Apple and Samsung today have imposed upon Nokia competitive pressure
once associated with Motorola. What would you advise Nokia to do in light of the success of the
iPhone with all its thousands of applications from independent software providers?
(TOTAL : 20 MARKS)
6