Reference no: EM131790865

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

1. Managerial economics is an application of economic theories and decision science analytical tools to solve managerial decision problems. The ability to make good decisions is the key to successful managerial performance. All decision making shares several common elements.

Using your organisation as an example, discuss in sufficient detail, the common elements of a decision making process.

2. Marginal analysis is one of the most useful concepts in microeconomics. Resource-allocation decisions typically are expressed in terms of the marginal equilibrium conditions that must be satisfied to attain an optimal solution.

Discuss the marginal analysis concept and show, using examples, how this concept can be applied in aiding decision making in the short run and long run investment.

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:

REGION	SALES (Y)	ADVERTISING	SELLING PRICE (P)	DISPOSABLE
	('000 gallons)	EXPENSES (A)	($/gallon)	INCOME (M)
		($'000)		($'000)
1	160	150	15.00	19.0
2	220	160	13.50	17.5
3	140	50	16.50	14.0
4	190	190	14.50	21.0
5	130	90	17.00	15.5
6	160	60	16.00	14.5
7	200	140	13.00	21.5
8	150	110	18.00	18.0
9	210	200	12.00	18.5
10	190	100	15.50	20.0

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.

b. Non linear relationship

i. Estimate a logarithmic form of the demand function.
ii. Is the estimated demand function ‘good'? Explain your answer.
iii. Compare with the linear form above. Elaborate.

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:

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

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- makings.

REQUIREMENT

The Public Service Company of the Southwest is regulated by an elected state utility commission. The firm has total assets of $500,000. The demand function for its services has been estimated as :

P = $250 - $0:15Q

The firm faces the following total cost function:

TC = $25,000 + $10Q

(The total cost function does not include the firm's cost of capital)

a. In an unregulated environment, what price would this firm charge, what output would be produced, what would total profits be, and what rate of return would the firm earn on its asset base?

b. The firm has proposed charging a price of $100 for each unit of output. If this price is charged, what will be the total profits and the rate of return earned on the firm's asset base?

c. The commission has ordered the firm to charge a price that will provide the firm with no more than a 10 percent return on its assets. What price should the firm charge, what output will be produced, and what dollar level of profits will be earned?

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

OPEC cut key to market rebalancing
- Oil glut will last well into 2017 unless cartel fulfils pledge to reduce output: IEA

A massive oil glut may weigh on world markets deep into next year unless the Organisation of the Petroleum Exporting countries (OPEC) makes good on its promise to cut output, the International Energy Agency (IEA) said yesterday.

The oil price has recovered steadily since the oil cartel said last month that it would reduce production, with details to be hammered out at the cartel's November meeting, and such a deal would "speed up the process" of working off global inventories, the IEA said in its monthly report.

"Even with tentative signs that bulging inventories are starting to decline, our supply-demand outlook suggests that the market - if left to its own devices - may remain in oversupply through the first half of next year, "the IEA said. "If OPEC sticks to its target, the market's rebalancing could come faster."

Initially greeted with skepticism among analysts, OPEC's agreement to cut output has gained traction in the oil market, with IEA noting that the oil price has risen by 15% since the cartel's announcement on September 28, 2016.

However, oil prices fell almost 2% on 8 November, 2016 retreating from one-year highs after mixed responses by Russian oil industry officials towards OPEC's call for all major crude producers to cut output. Igor Sechin, Russia's most influential executive and head of Rosneft, told Reuters in an interview his company will not cut or freeze oil production as part of a possible agreement with OPEC.

Questions

1. Discuss different forms of collusion, while giving special attention to cartel.

2. Elaborate important factors affecting the likelihood of successful collusions. Do you think OPEC has been successful? Justify your answer.

3. Based on the above article, if you are the chairman of OPEC, what would you do in respond to Igor Sechin's decision?