Managerial Economics Assignment: Beach Resort & Calculator Solutions

This managerial economics assignment solution addresses two key questions. Question 8 focuses on the investment decision for a beach resort hotel, analyzing the net present value (NPV) of two vending machine options (Refreshing and Cooling) with different purchase prices, salvage values, and expected cash flows, considering a risk-free discount rate and risk premium. The analysis aims to determine which machine maximizes NPV. Question 15 delves into the pricing strategy for a calculator manufacturing plant. It involves calculating the price the manager should charge, determining the price elasticity of demand, and analyzing the optimal mark-up based on the price elasticity. Additionally, it evaluates whether to accept an order for extra calculators based on marginal cost considerations.

Running head: MANAGERIAL ECONOMICS
Managerial Economics
Name of the University
Name of the Student
Author Note

1MANAGERIAL ECONOMICS
Table of Contents
Answer for question n.o 8:.........................................................................................................2
Answer for question n.o 15:.......................................................................................................2
References:.................................................................................................................................4
Bibliography:..............................................................................................................................4

2MANAGERIAL ECONOMICS
Answer for question n.o 8:
Net present value (NPV) represents the difference of present value related to cash
inflows with the present values related to case outflows for certain time period. For
investment planning and capital budgeting, NPV is used (Yemshanov et al. 2015). This can
help the business to analyse the profitability related to a project. For both machines, values of
cash inflow are considered as same. After calculating NPV, it is shown that 1st option has the
highest NPV compare to others (Shu, Zeithammer and Payne 2016). Hence, the beach-resort
hotel should install the refreshing unit due to its higher expected NPV value.
Answer for question n.o 15:
a.
The manager needs to charge $2376000 for calculators.
b.
At profit maximising price: MR=MC
To obtain the value of price elasticity, the following formula is used:
P=MC * Ed/(Ed+1)
15.84= 6* Ed(Ed+1)
Ed=-1.61
The value of price elasticity of demand at the profit maximising price is -1.61
c.
The relation between price elastic and market up is :
(P- MC)/P=1/Ed
The given value of price elasticity for demand is: -4
Therefore, the optimum mark-up is: 25%

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d.
In this case, the plant manager produces total 170000 amounts of normal or standard
calculators for school. To produce this extra unit of calculators, the company experiences
$2100000 amount of total cost. Here, per unit marginal cost for this plant is $6, which is more
than $10 and consequently the firm can earn extra revenue. Hence, the plant can accept this
order.

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References:
Shu, S.B., Zeithammer, R. and Payne, J.W., 2016. Consumer preferences for annuity
attributes: Beyond net present value. Journal of Marketing Research, 53(2), pp.240-262.
Yemshanov, D., McCarney, G.R., Hauer, G., Luckert, M.M., Unterschultz, J. and McKenney,
D.W., 2015. A real options-net present value approach to assessing land use change: A case
study of afforestation in Canada. Forest Policy and Economics, 50, pp.327-336.
Bibliography:
Abuzayed, M., El-Dabba, N., Frary, A. and Doganlar, S., 2017. GDdom: an online tool for
calculation of dominant marker gene diversity. Biochemical genetics, 55(2), pp.155-157.
Atkin, D., Chaudhry, A., Chaudhry, S., Khandelwal, A.K. and Verhoogen, E., 2015. Markup
and cost dispersion across firms: Direct evidence from producer surveys in
Pakistan. American Economic Review, 105(5), pp.537-44.