SCHOOL OF BUSINESS

DEPARTMENT OF BUSINESS ADMINISTRATION

Managerial Economics (MBA)
Individual Assignment
Individual assignment One and Two
Submission date: -

Prepared by: - Aster Shiferaw asmare ID: - GSR/0311/13

Submitted to: - Alemu T(PHD)

AUGUEST, 2021 G.C

Addis Ababa, Ethiopia

ASSIGNMENT ONE

Question one

Suppose the Vodafone company recruited you as the country manager of the firm.
One of the job descriptions for this position that you were requested is projecting the
most likely future demand for Vodafone telecom company. To do so, you requested
the Ethiopian Telecom company to provide you past and current demand part for the
Ethio telecom but rejected your request. As an alternative option, you decided to use
the consumer survey method to forecast the most likely future demand. Briefly
discuss

A. How you could forecast future demand for the Vodafone company

B. While forecasting future demand, the personal interview and questionnaire

methods are the most frequently used methods. Which method would recommend
for the Vodafone firm taking into account the Ethiopian context and why?

C. How do you estimate the most likely future demand for the firm if you use sample
survey method?

ANSWER

A. Once the mothed of forecasting future demand is decided to be through

customer survey. As country manager, I will develop detail market reason
proposals to be effected throughout the country to be implemented through
sample selection. Once identify sample groups, the survey will be conducted
through either questioner or face to face interviews depends on the nature of
potential customers.
The contents of the survey will be but not limited to: -
 The promising power of potential customers
  potential customer telecom voice usage trend
 the sensitivity for price change on telecom voice call
 potential customer satisfaction with telecom voice call
 potential customer views on ethiotelecom voice call tariff
 etc…
B. In Ethiopian context, I recommend Vodafone firm taking in to account both
methods by segmenting potential customers. For urban area customer, I
recommend to use questioners and for rural area potential customers, I
recommend to use personal interviews because most of Ethiopia population
far from urban are illiterate, interview methods are preferable.
C. Based on my market reason taking of sample survey, I will project the future
demand as follows:
 Get estimated number of potential customer through the country based
on total population
 Estimate future demand of sample potential customers
 Divide the estimated future demand of sampled potential customer by
the number of sample potential customer
 Finally, I will multiply per unit future demand of sampled potential by
the total number of estimated potential customer

ASSIGNMENT TWO

Question 2

Suppose you estimated the demand function for the above Vodafone firm using a
sample taken from residents in Addis Ababa as follows:

𝑸𝒅=𝟏𝟐−𝟏.𝟐𝟓𝑷𝒙+𝟓.𝟐𝟓𝒀−𝟑.𝟐𝟓𝑷𝒓 where 𝑄𝑑, 𝑃𝑥, 𝑌, and 𝑃𝑟 are the level of quantity

demanded, price of Vodafone voice call fee, the income of the Vodafone telecom
potential customers, and price of Ethiotelecom voice call fee, respectively. Also,
assume that all variables are measure in natural logarithm.

A. Identify and interpret the price, income and cross-price elasticity of demand.

B. What will be your recommendation for the general manager of the Vodafone firm
considering the price elasticity of demand and why?

C. Are the Vodafone voice services substitute or complements to the ethiotelecom

voice services taking into account the above-estimated demand function, not taking
into account what you know or what you expect. What is the message or implication
of such relationship to the general manager?

ANSWER

Qd = 12 – 1.25Px =5.25Y – 3.25 Pr

A. Identify and interpret the price, income and cross-price elasticity of demand.
Price elasticity of demand
∆𝑸 𝑷𝑿
Equation ∑𝑫
𝑷𝑿 = ∗
∆𝑷𝒙 𝑸

= |-1.25| = 1.25

Interpretation: _ when price of Vodafone voice call fee increasing by 1%, quantity
demand for Vodafone reduce by 1.25% and vice versa.

Income elasticity of demand

∆𝑸 𝒀
Equation ∑𝒅𝒚 = ∗
∆𝒀 𝑸

= 5.25

Interpretation: - when income of Vodafone telecom potential customer

decrease/increase by 1% the demand of Vodafone telecom company
decrease/increase by 5.25%.
Cross-price elasticity of demand

∆𝑸 𝑷𝒓
Equation ∑𝒅𝑷𝒓 = ∗ = |-3.25| = 3.25
∆𝑷𝒓 𝑸

Interpretation: - if the price of ethiotelecom voice call fee increase/decrease by 1%

then, the demand of Vodafone telecom decrease/increase by 3.25%.

B. The value of price elasticity of demand is greater than 1 which implies that
potential customers are price sensitivity/elastic. Hence, my recommendation
for the general manager of the Vodafone would be not to set/charge higher
price for voice call. In other word, to set a low price so as to increase customer
bases.
C. Based on the cross-price elasticity of future demand which is negative, we can
conclude that Vodafone voice service and ethiotelecom voice service is
compliment. The implication of such relationship of the service to the general
manager is to work closely with ethiotelecom even by looking option
partnership.