UNIVERSITI MALAYA UNIVERSITY OF MALAYA PEPERIKSAAN IJAZAH SARJANA PENTADBIRAN PERNIAGAAN EXAMINATION FOR THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION SESI AKADEMIK 2011/2012 : SEMESTER 1 ACADEMIC SESSION 2011/2012 : SEMESTER 1 CFGB6101: EKONOM! UNTUK PENGURUS CFGB6101: ECONOMICS FOR MANAGERS Januari 2012 MASA: 3 jam January 2012 TIME: 3 hours ARAHAN KEPADA CALON: INSTRUCTIONS TO CANDIDATES: THIS PAPER CONTAINS TWO SECTIONS: SECTION A AND SECTION B. YOU ARE REQUIRED TO ANSWER FOUR (4) QUESTIONS ONLY. ANSWER TWO (2) QUESTIONS IN SECTION A AND ANSWER ONLY TWO (2) FROM SECTION B. Jadual/llustrasi hendaklah dilukis dengan jelas. Diagram/illustration must be dravm clearly. Soalan boleh dijawab sama ada di dalam Bahasa Malaysia ataupun Bahasa Inggeris. Questions may be answered in Bahasa Malaysia or English (Kertas soalan ini mengandungi 6 soalan di dalam 8 halaman bercetak) (This question paper consists of 6 questions on & printed pages)CFGB6101/2 SECTION A: ANSWER TWO (2) QUESTIONS ONLY. Question 1 (@) The market for milk is in equilibrium. Recent health reports indicate that calcium is absorbed better in natural forms such as milk, and at the same time, the cost of milking equipment rises. Carefully analyze the probable effects on the market and support your answer graphically. (5 marks) (b) For each of the following changes, show the effect on the supply curve and state what will happen to market equilibrium price and quantity in the short run. Support your answers graphically. (i) The government requires pollution control filters that raise costs on goods. (i) ‘Wages of workers in this industry fall. (ii) There is an improvement in technology. (iv) The price of the good falls. (8 marks) (c) The initial price of a cup of coffee is $1, and at that price, 400 cups are demanded. If the price falls to $0.90, the quantity demanded will increase to 500. (i) Calculate the (arc) price elasticity of demand for coffee (3 marks) (ii) Based on your answer, is the demand for coffee elastic or inelastic? (3 marks) (iii) Based on your answer to (i), if the price of coffee is increased by 10%, what will happen to the revenues from coffee? Carefully explain how you know. (6 marks) (Total: 25 marks)CFGB6101/3 Question 2 (a) Annual demand and supply for the DigiGaga Company is given by: QD = 5,000 + 0.51 +0.2A- 100P, and QS = -5000 + 100P where Q is the quantity per year, P is price, | is income per household, and A is advertising expenditure (i) A= $10,000 and | = $25,000, what is the demand curve? (4 marks) (ii) Given the demand curve in part (i), what is equilibrium price and quantity? (4 marks) (ii) If consumer incomes increase to $30,000, what will be the impact on equilibrium price and quantity? (6 marks) (b) Use the equation Qd = 5,000 - 15P + SOA + 3Px - 4I, (2,117) (2.7) (15) (2) (3) where, Qd = Quantity Demanded, P = Good Price, A = Advertising Expenditures, Px= Price of a Competitive Good, A = Advertising Expenditures, | = Average Monthly Income, and the Standard Errors of the Regression Coefficients are shown in Parentheses. (i) Calculate the t-statistics for each variable and explain what inferences can be drawn from them, (9 marks) (ii) IF R’ of this equation is 0.25, what inference can be drawn from it? (2 marks) (Total: 25 marks)Question 3 (a) Number of Workers Output 0 50 410 300 450 590 665 ~700 725 Jo} 09/1} o>] en] |o9/ro| +0) 710 3 705 CFGB6101/4 ‘The table above shows the weekly relationship between output and number of workers for a factory with a fixed size of plant (i) Caloulate the marginal product of tabor. (i) At what point does diminishing returns set in? (ii) Calculate the average product of labor. (iv) Find the three stages of production (3 marks) (2 marks) (3 marks) (3 marks)CFGB6101/5 (b) Consider a firm that has just built a plant, which cost $20,000. Each worker costs $5.00 per hour. Based on this information, fill in the table below. No of Average IMarginal| Fixed |Variable| Total [Marginal AY°"85° | average Worker Output} product] Cost | Cost | Cost | Cost | V&@!° [otal Cos 0 | 0 20,000 |= = = 30 | 400 20.250 400900 20,500, 450 1300 20,750 200 1600 21,000, 250 1800 21,250 300 | 1900 21,500 350 1950 21,750 (10 marks) (©) Carefully explain the difference between diseconomies of scale and diminishing returns, (4 marks) (Total: 25 marks)CFGB6101/6 SECTION B; ANSWER TWO (2) QUESTIONS ONLY. Question 4 (a) (b) Oil industry and power industry would appear to be examples of imperfect markets while fish industry is a good example of perfect market. Ww (i) How could we argue that oil industry and power industry are not competitive markets and each firm’s demand curve is not perfectly elastic while fish industry is a competitive market with each firm’s demand curve is almostly perfectly elastic? (6 marks) Explain using separate diagrams the long-run equilibrium position of the firms under perfect competition and imperfect comptition (i.e. monopolistic and oligopoly markets). Identify the areas that represent consumer surplus and producer surplus. (4 marks) A phenomenon in the retail merchandising of food in Malaysia is the growing popularity of private-label (also calied store-brand such GIANT andCAREFOUR) products, These products are priced at a lower level than the premium national brands. 0) (ii) Use the concepts of price elasticity and relevant cost to explain the profitability of these products from the view point of the retail stores that sell these private-label products and the manufacturers of those private- label products. (5 marks) If you were the manger of a national premium brand, what would you do to fight the growing competition of private labels? (5 marks)CFGB6104/7 (©) Sunrise Juice Company sells its output in a perfectly competitive market. The firm's total cost is given in the following schedule: Output Total Cost (Units) 8) 0 50 10 120 20 170 30 210 40 260 50 330 60 430 Total costs include a “normal” return on the time (labor services) and capital that the owner has invested in the firm. The prevailing market price is $7 per unit (i) What is the firm's profit maximizing output level? (3 marks) (ii) Is the industry in long-run equilibrium? Justify your answer. (2 marks) (Total: 25 marks) Question 5 (a) Under what circumstances would a discriminating monopolist produce a more (b) socially optimal output than a nondiscriminating monopolist? Is there any situation under which a discriminating monopolist could produce the quantity that would be produced under competition? Illustrate your answers with diagrams. (7 marks) Zar Island Gas Company is the sole producer of natural gas in the remote island country of Zar. The company's operations are regulated by the State Energy Commission. The demand function for gas in Zar has been estimated as: P= 1,000 - 0.20 where Q is output (measured in units) and P is price (measured in dollars per unit). Zar Island's cost function is: TC = 300,000 + 10 This total cost function does include a "normal" retum on the firm's invested capital of $4 million.CFGB6101/8 In the absence of any government price regulation, determine Zar Island's optimal (j) output level, (j) selling price, (ii) total profits, and (iv) rate of return on its asset base. (12 marks) (©) Anairline manufacturer has annual fixed costs of RM50 million. Its variable costs are expected to be RM2 million per plane. If the manufacturer wants to earn a 10 percent rate of return on its investment of RM400 million and expects to produce 100 aircraft this year, what will its markup on total cost have to be? If it expects to produce 150 aircraft, what will its markup have to be? (6 marks) (Total: 25 marks) Question 6 (a) _ If the economy is experiencing high inflation, what sort of fiscal policy changes would tend to solve this economic problem? (7 marks) (b) Explain how tax cuts can impact both aggregate demand and aggregate supply. Give an example of each. (8 marks) (©) Assume that the federal budget is initially balanced, then the government raises its spending without raising taxes. Explain, in sequential order, how this action would be expected to affect the whole country’s economy. (40 marks) (Total: 25 marks) END