INDEPENDENT UNIVERSITY BANGLADESH

Spring 2020
MBA 510E : Business Economics
Make-up Home Task

Schedule of Time

Action Date/Day Time

Home Task emailed 04 April 2020 Saturday 2 pm
Working, Answering, Typing 05 April 2020 Sunday Whole day
Working, Answering, Typing 06 April 2020 Monday Half day
Submission by email 06 April 2020 Monday By 3 pm latest.

Instructions
Please write the question number clearly for every answer.
Write your name and ID number on the 1st page.
Insert Tables, Charts and Diagrams as due. You can copy necessary diagram from the
Internet.
Type the answer in MS Word file to be sent as an email attachment.

Submission
Submit via email, as an attached document,

by 3pm on 6th April 2020, Monday

There will be no extension.

The email address is: b.eco.510e@gmail.com

IUB : Spring 2020 : Bus Econ 510E: Make-up Home Task

 Non-Submission
This is an optional home task.
Any student not seeking to improve marks
can decide to skip the task.

How many questions to answer?

You have to attempt all 4 (four) questions.

There are 25 marks for each question.

Respond all elements of a question.

Penalty for Plagiarism

The Take-home Task is NOT a ‘group assignment’.

It must be completed individually.
It is a shame when a student copies from others.
Two students submitting the same stuff means at least one is a plagiarist.
However, if detected, both will be equally penalized.

IUB : Spring 2020 : Bus Econ 510E: Make-up Home Task

 Questions
Question: 1

(a) What do you understand by price-elasticity of demand. Write and Explain point-elasticity
formula for calculating price-elasticity of demand? (Marks: 2+2)

(b) What do you mean by the statement that PED for Soybean Oil in Dhaka city was 0.45
between 2017 and 2018? (Marks: 2)

(c) Why is Price Elasticity of Demand (PED) useful for a producer of goods? Explain
appropriately. (Marks: 5)

(d) Given other factors remaining constant, how would an increase in the price of milk affect the
demand for sweetmeat? (Marks: 2)

(e) Enumerate from the data given below what was the price elasticity of demand for motor oil
between 2001 and 2002. (Marks: 10)

Table-1

Year Sale for motor Oil Retail Price of Number of cars on road
Motor Oil per year
2001 1500 metric tons BDT 1300 per kg 250,0000
2002 1650 metric tons BDT 1390 per kg 300,0000

(f) Manufacturers such as Dunlop and Goodyear use both natural and synthetic rubber to produce
automotive tires. If the elasticity of the demand for natural rubber with respect to changes in the
price of synthetic rubber is negative, state if the two types of rubber are Substitutes or
Complements. Explain your answer. (Marks: 2)

[Marks: 25]

Question-2

(a) What do you understand by break-even point? What is the purpose of carrying out break-even
analysis? Explain with the help of a graph. Describe and explain the graph. (Marks: 1+2+3=5)

(b) The Modern Foundry situated in Rayer Bazaar produces wrought iron Tube Well. The fixed
costs of the firm are BDT 60,00,000 per year and unit variable cost is BDT 4,000 per Tube Well.
It sells the Tube Wells through distributors across the country at an ex-factory price of BDT
10,000 per Tube Well. Calculate the number of Tube Wells that Modern Foundry must be able to
produce and sell in a year to break even. Write all steps in details. (Marks: 10)

(c) Refer to (b) above. What would be the amount of total profit if the actual annual sale of Tube
Well stands 10 percent over the break-even output level? Write all steps in details. (Marks: 5)

IUB : Spring 2020 : Bus Econ 510E: Make-up Home Task

(d) Given (b), how many Tube wells will yield profit if unit variable cost falls by 10%? Write all
steps in details. (Marks: 5)

[Marks: 25]

Question: 3

(a) Bell Helicopter is an American aircraft manufacturer mostly known for their light, mid-size
and military helicopters. The company has been active for nearly 100 years. ‘Bell Helicopter’
changed to simply ‘Bell’ in the 2018 for rebranding. The following table contains data relating to
the monthly production of Bell-430. The main task is to determine the monthly profit-
maximizing output. Respond to tasks given below. (Marks:6)

Table: 3: Bell 430 – Costs, Price and Profit

Fixed Marginal Price Marginal Total

Output Cost Variable cost Cost Profit Profit
Million Million USD Million USD USD
No of aircrafts USD Million USD USD Million Million
0 Output 45
st
1 Bell-430 45 4.0 6
2nd Bell-430 45 4.5 6
3rd Bell-430 45 5.0 6
4th Bell-430 45 5.5 6
5th Bell-430 45 6.0 6
6th Bell-430 45 6.5 6
7th Bell-430 45 6.5 6

Tasks

Task-1 : Describe the case briefly.

Task-2 : What is the marginal revenue for the 3rd Bell 430?
Task-3 : How will you calculate marginal profit?
Task-4 : What will be the total profit if Bell produces 5 helicopters a month?
Task-5 : Fill up all the empty boxes with appropriate numbers.
Task-6 : Which is the profit maximizing output? Explain your answer.

(b) What is the main characteristic of a perfectly competitive market? Can a firm operating in
perfectly competitive market situation increase the product price to secure higher profit margin
per unit of product? (Marks:1+2)

(c) What is the profit maximizing condition for a firm operating in perfect coemption? Explain.
(Marks:7) (Copy necessary graph from Internet)

IUB : Spring 2020 : Bus Econ 510E: Make-up Home Task

(d) Three situations may occur in a competitive market. One is: a firm operating in a perfectly
competitive market can earn super normal profit when P > AC. Explain the statement. (Marks:3)

(e) What triggers exit of a firm in a competitive market? Describe the process that terminates
further exit. (Marks:6)

Question No. 4
The question about fitting a model for forecasting demand for Saree and estimating the same with
SPSS. Sprite Textiles produces ordinary cotton saree for wearing at home. The management of
Sprite Textiles intends to know which variables impact the sale of Saree and to what extent.
It has been possible to collect data for 17 years from 2003 to 2019 relating to Sale of Saree, Price
of Saree, Average income of people and Sale of two-piece set of Salwer-Kamiz (see Table-4A
below). Accordingly, a regression model has been fitted to estimate Sale of Saree (dependent
variable) based on 3 (three) independent variables (predictor), namely,
(a) Price of Saree (BDT per piece, Negative or inverse relationship with Sale of Saree)
(b) Income of people (USD per capita, Positive relationship with Sale of Saree), and
(c) Sale of 2-piece set of Salwer-Kamiz (Number of sets, Negative or inverse relationship
with Sale of Saree).
SPSS package has been used to carry out linear multiple regression analysis. Three output tables
generated by SPSS has been reproduced on the next page (Table-4B).
Answer following questions.
Questions to answer:

a. Describe the regression model. (Marks:2)

b. Interpret the estimated value of the Constant as in the Coefficient table. (Table-4b below)
(Marks:2)
c. Comment on the sign and value of unstandardized coefficient of Price as in the
Coefficient table. (Marks:3)
d. Examine the Coefficients table of the SPSS Output (Table-4b below). Write the
‘operational regression equation’ based on the estimated value of unstandardized
coefficients of three independent variables. Explain all variables & parameters.
(Marks:3).
e. Estimate the sale of Saree produced by Sprite Textiles in 2020, assuming that the Price of
Saree will be fixed at BDT 1000 per piece while people’s annual average Income will rise
USD 3200 per capita, and Sale of 2 piece Salwer-Kamiz sets will be increase to 750
million sets. (Marks: 15)
[Marks: 25]

IUB : Spring 2020 : Bus Econ 510E: Make-up Home Task

 Table: 4A:
Sale of Saree produced by Sprite Textiles
and 3 (three) independent variables
Sale of 2-piece
Salwer-Kamiz
Sale of Saree Price of Saree Income Sets

Year (y) (x1) (x2) (x3)

(Million piece) (BDT per piece) USD per capita (BDT per set)

2003 180 700 1398 300

2004 185 700 1487 225
2005 188 725 1582 260
2006 187 650 1683 290
2007 190 680 1791 330
2008 192 705 1905 350
2009 195 730 2027 370
2010 210 750 2156 400
2011 214 800 2260 425
2012 219 800 2348 400
2013 220 850 2451 475
2014 180 950 2579 600
2015 200 900 2714 650
2016 220 850 2843 700
2017 225 850 2979 750
2018 222 875 2877 675
2019 221 925 3136 725

IUB : Spring 2020 : Bus Econ 510E: Make-up Home Task

Table: 4B : SPSS Output

IUB : Spring 2020 : Bus Econ 510E: Make-up Home Task