Assignment No.

01 Semester: Spring 2012

Eco404 (Managerial Economics) Muhammad Ha i !r "ehman Student #d: M$11040%&1' Assignment (art A: Read the case very carefully and from the given information, calculate the following for PEL Company: a) Total explicit cost ) Total implicit cost c) !usiness profit d) Economic profit Ans)er: E*plicit costs refer to the actual expenditures of the firm to hire, rent, or purchase the inputs" it re#uires in production$ These include the wages to hire la or the rental price of capital, e#uipment, and uildings, and the purchase price of raw materials and semi finished products$ So E*plicit $ost + 12,'',000 - .,4',000 - ',.2,000 E*plicit $ost + 2,4.2,000 #mplicit costs refer to the value of the inputs owned and used y the firm in its own production activity$ Even though the /irm does not incur an0 actual e*penses to use these inputs, the0 are not /ree, since the /irm could sell or, rent them out to other /irms. #mplicit $ost + ',1%',.&0 % &12,'',000 - .,4',000 - ',.2,000 - 22,1&,000) #mplicit $ost + 1,2'',.&0 2usiness (ro/it + A3$ (ro/it + 4" 5 e*plicit costs 2usiness (ro/it + A3$ (ro/it + ',()',*+, - .,/*.,,,, 2usiness (ro/it + A3$ (ro/it + %,46%,.&0 Economic pro/it + 4" 5 e*plicit costs 5 implicit costs Economic (ro/it + ',()',*+, % .,/*.,,,, % 0,.'',*+, Economic (ro/it + 2,21&,000 (art 2: 1n that hypothetical study, the following regression function was estimated for PEL Refrigerators: 2R3 *(, - ,$.PR4 ,$56 4 ,$/7 4 ,$+P8 8here, 2R3 9ales of PEL Refrigerators PR3 Price of PEL Refrigerators 6 3 6um er of consumers in the mar:et 7 3 Consumers; income P83 Price of 8aves Refrigerators &a su stitute product) 9uppose in year .,0., PR3 Rs$'),,,,, 6 3 .',, 7 3 Rs$/',,,,, P83 Rs$'0,,,, then calculate: a) Total sales of PEL Refrigerators ) Price elasticity of demand for PEL Refrigerators c) 1ncome elasticity of demand for PEL Refrigerators d) Cross price elasticity of demand for PEL Refrigerators with respect to 8aves Refrigerators Ans)er: