ECO404 Assignment 1 Solution and Discussion

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ECO404 GDB 1 Solution and discussion

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They are operating in Oligopoly market structure. For mutual gain firms should play sequential-move game by this they will act accordingly so they will get to know each other strategy and can counter for better.

ECO404 Assignment 1 Solution and Discussion

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ECO404 Assignment Idea Sol 2019 Case 1: Competition is a subject always open to debate in health care, and pharmaceuticals are no exception. Price competition in the pharmaceuticals supplies industry is growing rapidly in the increasingly price-conscious new millennium. Ferozsons is one of the leading companies in Pakistan maintaining exclusive agreements with a number of international partners for distribution, selling and co-manufacturing of surgical products. During the past year, Ferozsons sold 7 million (700, 000, 0) units of surgical products at a price of $13.50, for total revenues of $85 million. During the current year, sale of units of surgical products have fallen from 7 million (700, 000, 0) units to 4.6 million (460, 000, 0) units following a competitor price cut from $12.95 to $10.50 per unit. Requirement: a. Calculate the arc cross price elasticity of demand for surgical products of Ferozesons. b. Marketing Director of surgical system in Ferozsons, projects that unit sale will recover from 4.6 million (460, 000, 0) units to 5.8 million (580, 000, 0) units if Surgical Systems reduces its own price from $13.50 to $12.50 per unit. Calculate Surgical Systems’ implied arc price elasticity of demand. (Marks: 4+4) Case 2: PEL prides itself on innovative home appliances geared towards the modern consumer. With the start of winter season PEL has announced 2% discount off the average price of refrigerators sold during the month of October in an effort to reduce excess end-of-themodel-year inventory. Customer response was wildly enthusiastic, with unit sales rising by 20% over the previous month’s level. Requirement: a. Calculate the point price elasticity of demand for PEL refrigerators sold during the month of August. b. Calculate the profit-maximizing price per unit if PEL has Rs.30, 600 marginal selling costs. (Marks: 3+4) Answer (A) Arc Price elasticity of demand (responsiveness of demand) formula is % ∆Q/%∆Price = ((Q2-Q1/average quantity)*100)/(p2-p1/average price)*100 Competitive price cut Surgical products of Ferozson,s quantity demand $ 12.95 70,00,000 $10.50 46,00,000 Arc elasticity of demand = (4600000-7000000/5800000)*100 = -2400000/5800000 = -41.37 (10.50-12.95/11.72)*100 = -2.45/11.72 = -20.90 Arc elasticity of demand = -41.37/ -20.90 = 1.97 Note: If price of surgical products of competitive company decreases by 1% then quantity demand of surgical products of Ferozsons will be decrease by 1.97% (B) Price changes in ferozsons quantity demand changes P1 13.50 Q1 4600,000 P2 12.50 Q2 5800,000 Arc price elasticity= ( 5800,000-4600,000/5200000)*100 = 23.07% = (12.50-13.50/13) * 100 = -7.69% Arc price elasticity= 23.07/-7.69 = -3 absolute value is 3 Note: If ferozsons decreases price by 1 % , quantity demand increases by 3 % . If ferozsons decreases price by 10% ,quantity demand will increase by 30%. Case : 2 (A) Pel refrigerators: %∆Q = 20% %∆P= -2% Point Price elasticity of demand = ((Q2-Q1/Q1)*100)/(p2-p1/P1)*100 = .20/-.02 Ped = -10 absolute value is 10 (B) έ= elasticity Marginal cost = 30600 έ = -10 Profit maximizing price = Mc (έ/ έ+1) = Mc/ (1+1/ έ) = 30600 (-10/-10+1 =306001.111111 P = 34000

ECO404 GDB1 Solution and discussion

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Total Marks 5
Starting Date Wednesday, July 31, 2019
Closing Date Tuesday, August 06, 2019
Status Open
Question Title GDB
Question Description
The case:

Pakistan International Airlines (PIA) has started pre-Hajj operation from 4th July, 2019, and it will continue till fifth of the next month as per the decision of Minister for Aviation Ghulam Sarwar Khan in Islamabad. It was told by minister that PIA has planned a total of 294 flights for intending pilgrims. As per this plan suppose PIA is offering 10 flights per day from Lahore to Saudi Arabia. Due to the heavy rush of Hujaj Karam manager of PIA, with the approval of Minister for Aviation, has decided to add 11th flight per day in order to avoid any unavoidable circumstances. If minister of Aviation permits and it becomes possible then it would cost Rs.180, 000 per flight, or Rs.2000 per available seat and this decision is also helpful to increase revenue of the PIA.

Requirement:
Being a student of economics identify which type of cost is applied for this decision to add the hajj flight per day. Will that identified concept of cost be relevant for decision making purposes or not? Discuss.

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ECO404 Assignment 1 Solution and Discussion

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ECO404 Assignment 1 Solution and Discussion

ECO404 GDB1 Solution and discussion