Contents

Question 1........................................................................................................................................1

Question 2........................................................................................................................................1

Question 3........................................................................................................................................3

Question 4........................................................................................................................................3

Degree of Price Discrimination....................................................................................................3

Influencing factors on Airline industry........................................................................................4

Answer 5......................................................................................................................................5

Law of diminishing returns and the short-run cost curve............................................................5

New Economies of Globalization................................................................................................7

Question 6........................................................................................................................................8

Answer 6......................................................................................................................................8

Perfect competition......................................................................................................................8

Oligopoly.....................................................................................................................................8

Question 7........................................................................................................................................9

(C)Other Factors..............................................................................................................................9

Part B.............................................................................................................................................10

Question 1......................................................................................................................................10

Question 2......................................................................................................................................11

Main Components of Aggregate Demand.................................................................................11

Key Factors Affecting Ringgit Value............................................................................................12

Gold Standard and Volatility / Control Volatility......................................................................12

Supply and demand................................................................................................................13

Market potential.........................................................................................................................13

Economic status quo..................................................................................................................13

 Investor trust..............................................................................................................................14

Capital inflows and outflows.....................................................................................................14

References......................................................................................................................................14

Question 1
The whole MBA Tuition Fee – 20,000

Books fee- 2000

Transport -500

Explicit cost of Mr Rahim – 22500 RM

Current salary – 2500 per month

Course duration – 18

The salary he will earn for 18 months- 2500*18= 45000 RM

Implicit cost- 45000

Financial Cost – 22500 RM

Economic cost = Explicit cost + Implicit cost

= 22500+ 45000

= 67500 RM

Question 2
The cost function and revenue of a firm.

TR=60 Q-Q2
TC =Q 2+30Q+30

TR =60 Q-Q2

TC=1/2 Q2 + 30 Q +30

100+60Q = 0.5Q2 +60Q

100=0.5Q2

0.5Q2=100

Q2 =100/0.5

Q2=200

Q=√200

Q=14

MR=MC So,

MR = αTC/αQ

= 1/2Q2 + 30Q + 30

14

=( 1/2 x 142) + ( 30 x14 ) +30

14

= ( 1/2x28) + 420 +30

14

= 14+420+30

14

= 464

14

MR= 33.14
Base on this calculation, we realize that, we can have maximum profit of 33.14 with the quantity
of 14.

If we keep selling in this rate, we can have a little profit in future. In order to maximize the
profit, we must find a better way to have long term profitable business.

Question 3

Optimal sales price=Marginal cost* (Price elasticity/Price elasticity+ 1)

OP =M* (PED /PED+1)

= 200* -3/(-3+1)

=200* (-3/-2)

=200* 1.5= 300

The optimal sales price must be 300 when the price elasticity is -3 and Marginal cost is 200 RM.

Question 4
Price discrimination is an approach which sets different Prices to same goods or service which
are sold in reasonable and possible prices to the customers. It includes same products which are
sold in different prices, to different buyers in both individual or group. Discrimination of price
differs in 3 different types.: First-Degree of Price Discrimination, Second-Degree of Price
Discrimination and Third-Degree of Price Discrimination.

Degree of Price Discrimination

First-Degree Price Discrimination is the least common since it has tight and rare informational
requirements. The purpose of First- Degree Price Discrimination is to take out from the total
amount of consumer surplus from each customer. Consumer surplus indicates the difference
between the customer’s willingness of purchasing the goods and the price he purchased. Second-
Degree Price Discrimination is unlike the First- Degree Price Discrimination. It strives to
maximize the profits by packaging into good condition instead of selling and distributing each
product or service a time. Third- Degree Price Discrimination reflects varieties of Prices of
different groups of consumers. It occurs when different groups of consumers are set with
different stages of prices for the similar product and service. It’s the most common type of
pricing in different way.

Influencing factors on Airline industry

With price discrimination, the firm can identify the use of the product in market. For instance,
domestic use or industrial uses with different price elasticities. Market can be separated by
circumstances of period, distance or the nature of usage of the goods. For example: for
educational institutions, the new edition of Microsoft office software is available with lower
price than to other buyers. In this situation, the buyers who got the goods in cheaper price from
elastic sub- market can sell at a higher and more profitable price with inelastic sub-market. To
make price discrimination visibly effective, the company also must possess monopoly power.
Price discrimination can happen under above mentioned degree if it meets certain conditions.

First, the firm must be in imperfect competition as in perfect competition, there is no possibility
for producer to control prices. It needs to have certain level of monopoly power to allow
producer to set price not to take price. Price discrimination strategy is mostly applied in many
industries like airline industry, entertainment industry and pharmaceutical industry and hotel and
tourism field. They give regular customers and to special discount. For instance; Airline industry
give lower price offer to those who buy tickets several months in advance than those who buy at
the last moment of travelling If the demand of some flight is high, the flight fare will be
increased whereas demand is low, they reduce the price to increase the sales. Many passengers
like to fly on weekends as they are going back home. So, weekends flight fare is higher than
weekdays flight fares.

Thus, timing is key for airline industry’s price changes. When passengers who want to travel in
peak months will plan to buy several months in advance with lower offer of price. For those who
don’t plan in advance and travel in peak time have to pay more than plan ahead people.
As a consequence, airlines use the mechanism known as inter-temporal pricing, which
allows them to target both “price sensitive” and “price insensitive” consumers. This
represents a form of price discrimination, particularly evident among low-cost airlines.

For the traveler, it is really an annoying thing to experience the rises of airfare and hotel charges
day by day, hour by hour in holiday seasons. This happens as the airlines aim to attract
passengers who are price- sensitive. Thus, they set aside several numbers of economy class
tickets sell them in low price. If these seats are sold, the airlines start increasing price for the rest
of seats. The price of airfare depends on the months especially in Myanmar Country, students
from high school and university have summer holiday from March to May 3 months. Especially,
April is the water festival which is the longest and most important traditional festival of
Myanmar. People tend to return to their native town as well as visit foreign on these days. For
these people, summer vacation is the only option to travel and they pay more to get flight ticket.
This become peak season in Myanmar. Another time is Thadingyut which is lighting festival. In
this period, domestic planes are more in demand as they go back to their native town rather than
going abroad. Charging higher in high demand period is known as peak-load pricing.

A form of price discrimination called versioning is also being applied in airline to classify the
quality of transport service they provided. For business class, there are some more flexibility to
adjust flight dates and can even cancel without having to pay fines. And more space, better meal,
carry more luggage, can board on less- crowded queue and more spacious and comfortable seats
than economy class. Besides, quantity discount and frequent-flyer loyalty services are also
available in airlines.

Overall, Price discrimination can’t always be negative thing as it can bring a lot of benefits to
consumers.

Answer 5

Law of diminishing returns and the short-run cost curve

Law of diminishing state that at a firm of production, input are increased but at a point of product
outputs are start to decrease although other inputs are being constant. For example, at one
product line buy the machinery; its capacity output is 20000units per days, for getting that
20000units output, 10manpowers used for that operation. Although we increased the manpower,
output can’t get more than of 20000Units. As shown in fig-1 of diminishing stages.
Fig-2 is showing for short-Run cost curve.

Output

Increasing diminishing Negative

Return Return Return

0 Number of Manpower
Fig-1 Three stages of production

Cost SMC
SAC AVC
 S
P

q1 q2 Output
Fig-2 Short-Run Cost.
SMC- Short-Run Marginal Cost, SAC-Short-Run Average cost, AVC-Short-Run Variable Cost

a) Economies of Scale and the long run cost curve

In microeconomics, a firm of production that produced large amount of qualities and it is
decreasing the cost for every unit of production. So cost per unit of production is decreasing and
increasing quantities as large scale”[ CITATION Tab10 \l 1033 ].
Fig-3 is showing for Long-Run cost curve.

Avg Cost
Economic of scale cause AC to fall
Lowest point on LRAVC and output efficiency

LRAC

q1 q2 q3 Output

Fig-3 showing for Long Run cost curve.

LRAC- Long Run Average Cost
New Economies of Globalization
If we talk about new economies of globalization, there many of factors are changing from old
economy to new economy.
For example, In New economics of globalization production and competition is happening
around the world as global but old economy is only happened into nation. In new global
economy organization structure is connecting with Network. Nature of employment of old
economy is mostly stable but new economy feature is challenging with Opportunity and Risk.
New economies of Globalization twenty-one century is changes to Economic, social, education,
political landscape and traditional manner. New global economy is transforming from standing
alone business to cooperation, partnership, synergy and mergers group of
economic”[ CITATION Akt04 \l 1033 ].

Question 6
Briefly explain how firms compete/set price under -

a. Perfect competition

b. Oligopoly

Answer 6

Perfect competition
In perfection competition, there is large number of buyers and sellers are selling the
homogeneous products in the market. In this market no one can influence the price but markets
are set the same price of each sellers and buyers, that kind of market is called perfect competition
market.

Oligopoly
The Oligopoly word is come from Greek and the complete meaning of Oligopoly market is “A
few competitions in the market”. An Oligopoly of the industry is stay as a few firms in a market
and seller are control and influence the behavior of the other firm and also other firm can
influence it.

Question 7
(C)Other Factors

If the resource materials of Olive Oil are scaring in this 2020,

How can affect on supply?

Actual cause effect on supply. If the prices of input go up, the supply will go down and the
supply curve will shift to the left. Finally, the price may go up so, the demand will reduce in the
market.

Part B

Question 1
Businesses examine macroeconomic trends to determine the stability of the business
environment (Devereux, 2007). By examining these trends, a business can identify factors such
as unemployment, bankruptcies, and home foreclosures, which can help to forecast whether
consumers purchasing behavior may change. As such, businesses can use in decision making to
scale down their plan to increase inventory or initiate expansion projects.
Some of the variables that affect business activities include government policies,
competition, natural forces, social, cultural forces, demographic factors, technological factors.
Government policies such as laws affect business operations. Natural forces comprise of natural
resources that can impede the production process of business. Social-cultural factors are the
dynamics and behaviors of individuals. That influences the marketing strategies of the business.
Demographics of a target population influence the consumption of a product or service.
Technology affects the kind of product or service business can offer.
There are many factors in the macro-environment that will affect the decisions of the
managers of any organization in this whole world. Tax changes, new laws, trade barriers,
demographic change and government policy, political changes are all examples of macro change.
A macro environment is the condition that exists in the economy as a whole, rather than in a
particular sector or region. In general, the macro environment includes trends in the gross
domestic product (GDP), inflation, employment, spending, and monetary and fiscal policy. The
macro-environment is closely linked to the general business cycle as opposed to the performance
of an individual business sector.
Question 2

There are four determinants of aggregate demand which are investment, government
spending, consumption, and net exports (Krishnamurthy, 2012). Among these components,
investment is the most volatile. Investment into five categories which include expectations,
technology, capital prices, interest rates, and physical wealth. Capital price influences investment
because the higher the capital price, the less the investments and aggregate demand. If interest
rates are high, few investments are made, and aggregate demand decreases. Also, new
technologies influence investments.
Aggregate demand is the total demand in the economy for final goods and services. Since
aggregate demand is measured by the total expenditure on goods and services of the community,
aggregate demand is also defined as "preparation of total amount by all the economy sectors
(households, businesses, governments) to pay goods and services."

Or, the total cost that the community will pay for purchasing goods and services.
Therefore, aggregate demand is the same with total spending on economy. If the total cost
planned to purchase all output is higher than input, it indicates that the aggregate demand
is high.

Main Components of Aggregate Demand

1. Household (or private) consumption demand. (C)

2. Private investment demand. (I)

3. Government demand for goods and services. (G)

4. Net export demand. (X-M)

Part B

No.3
Key Factors Affecting Ringgit Value

Gold Standard and Volatility / Control Volatility

The value of banknotes has long been closely linked to state gold reserves in human history. The
value of a country's currency is often directly proportional to the amount of gold it holds, giving
the country "true" value and stability. This monetary policy is called the gold standard.
However, with the gradual departure of the world from the US gold standard under President
Nixon in 1971, international currencies, including gold and other major foreign currency reserve
currencies, gradually declined in international reserves. I come in US Dollars, Euros, Yen, RMB.
Supply and demand
A country's foreign currency reserve is usually sufficient to mitigate sudden fluctuations in
currency supply and demand, or to artificially support or reduce the value of a currency through
short-term trading.
However, the value of money is mainly determined by the current supply and demand of money,
and the value of money is mainly determined by market forces. Government stability
One of the many factors affecting a country's current supply and demand is the stability of the
government. This is because sudden government changes or any type of problem can severely
affect economic policies and operations.

Fear and uncertainty alone are enough to panic investors and businesses and temporarily
withdraw funds from the state.

As a result, national currency fluctuations fluctuated during the election year and major political
scandals.

Market potential
In addition to government stability, the market potential of a country also affects the strength of a
country's currency. If a country is a developing country with a growing population, economic
growth, and bright prospects, it will naturally attract more foreign investment. As foreign
investment flows in, the demand for domestic currency will also increase. .

Economic status quo

When domestic companies prospered and the industry's exports and exports remained healthy,
the country's currency also tended to strengthen due to a large amount of trade.

Conversely, as trade ceases and investors move capital elsewhere, a sickly economy with little
activity has a negative impact on the strength of a country's currency.

Investor trust
After all, it all depends on investor confidence in the market.

This means that foreign and local investors control most of the country's capital, and deciding
whether to retain capital in the country or transfer it to other countries is directly related to the
supply and demand of the country's currency. influences.

Capital inflows and outflows

As more and more capital leaves the country, more and more domestic currencies are sold and
converted into foreign currencies, which puts strong selling pressure on currencies and weakens
them.[ CITATION WIL19 \l 1033 ]

References
Bibliography

Augustyn, A. (2020). Diminishing returns.

Burberry. (2012). fundinguniverse.com/company-histories/burberry-ltd-company-history.html.

“Burberry Ltd”.

economicsdiscussion.net/perfect-competition/perfect-competition-meaning-and-characteristics-
of-perfect-competition/13785. (n.d.).

KENTON, W. (2019). Economies of Scale.

Khoo, J. (2016). COLUMNS7 Key Factors That Influence The Value Of Our Ringgit.
dollarsandsense.my/7-key-factors-that-influence-the-value-of-our-ringgit/.

Kotler, P. &. ( 2004,). “Principles of Marketing. Upper Saddle River, New Jersey: Prentice Hall.

Kumar, M. J. (n.d.). Determination of Price Under Perfect Competition.

http://www.economicsdiscussion.net/perfect-competition/determination-of-price-under-
perfect-competition/7156.

Kumar, M. J. (n.d.). Price and Output Determination under Oligopoly.

Mathur, N. D. ((2002). Business Economics. Jaipur: Shivam Book House Pvt ltd.

Misra, S. K. ( (2007) ). Economic Environment of Business. New Delhi: Himalaya Publishing

House.

Nitisha. (n.d.). economicsdiscussion.net/cost/long-run-cost-and-its-types-with-diagram/3701.

Pettinger, T. (2019). Benefits of Price Discrimination.

POLOGEORGIS, N. A. (2019). How Globalization Affects Developed Countries.

investopedia.com/articles/economics/10/globalization-developed-countries.asp.

Samuelson, P. A. (2001). Microeconomics (17th ed.). McGraw-Hill. p. 110.

Shangquan, G. (2000). Economic Globalization: Trends, Risks and Risk Prevention.

Singh, J. (n.d.). Aggregate Demand: it’s Meaning and Components | Economics.

economicsdiscussion.net/demand/aggregate-demand-its-meaning-and-components-
economics/721.

TWIN, A. (2020). Price Discrimination.

WEB*pedia, A. E. (2020). AGGREGATE DEMAND DETERMINANTS. amosweb.com/cgi-

bin/awb_nav.pl?s=wpd&c=dsp&k=aggregate+demand+determinants.

(2020). wisdomjobs.com/e-university/managerial-economics-tutorial-307/short-run-cost-curves-
10117.html. Wisdom IT Services India Pvt. Ltd.