MBAZC416

Managerial Economics
Assignment 1- Case Study

Name: Vaibhav Ugvekar

ID:
MBAZC416 Managerial Economics Assignment 1- case Study

Case Study for Managerial Economics

Priya was married to Rajesh in the year 2017 and was a homemaker when the second wave of
Covid stuck India in April’2021. She could appreciate the pain points of her friends whose
children’s education had got impacted by the pandemic as the schools were not prepared well
for the online learning.
Priya realised that she could use her yoga skills and help fill teach yoga to the children as a
stress prevention technique through online sessions. Priya was also inspired by Rajesh’s
friend Suresh, who had launched online yoga tuitions after the first wave of Covid-19 and had
been doing well. The number of students with Suresh are given here as below for the 9
months.
Apr’2 May’20 Jun’2 Jul’20 Aug’20 Sep’2 Oct’20 Nov’20 Dec’20 Jan’21
0 0 0
1 4 6 9 15 18 20 23 26 29

Priya has kept an initial fixed advertising budget of Rs. 50k, and has extra infrastructure and
contacts so that she can have double the numbers as Suresh. She is planning to charge Rs.
2000 per month to each student, and has decided to limit 20 students in a batch. The
opportunity cost of her time is Rs. 3000 per hour, and she is planning to take 10 hours of
sessions in the month for each batch.
Answer the questions that follow:
a) Develop a business forecast for Priya for the 18 months period.
b) Develop the cost schedule for Priya showing variable cost and fixed cost
c) Find out the breakeven point for Priya when the cumulative profits or losses are zero
d) If the minimum price that Priya was willing to teach for was Rs. 1500 per student per
month, what is the producer surplus of Priya?
e) If the maximum price that an average student could pay was Rs. 3000 per month,
what is the consumer surplus of the student?
f) As the covid-19 situation eases, Priya shall start operating in a blended format (online
and offline classes). Priya observes that the number of offline hours necessary to
compensate for the online classes vary as given below. Draw the indifference curve
between the online minutes of delivery and offline minutes of delivery in the month.
Online minutes Compensating
replaced by offline offline minutes
60 40
120 81
180 124
240 170
300 220
360 275
420 336
480 403
540 477
600 558

1
BITS Pilani
MBAZC416 Managerial Economics Assignment 1- case Study

Solution:

Assumptions
1. Priya did regression analysis on Suresh's no. of students for the period April 20 to Jan 21
and extrapolated the number of students in Suresh's batch by forecasting using regression
analysis
2. Priya Utilized the advertising budget of Rs 50000 at the beginning itself, and has extra
infrastructure and contacts so that she can have double the numbers as Suresh
3. She started her classes on April 21 at a level twice as high as Suresh.
4. A new batch is started anytime the number of students exceeds the batch capacity of 20
students.
5. Profit considered in the case study as Economic profit and hence is the result of
subtracting both explicit and opportunity costs from revenue

a) Developing business forecast for Priya for the 18 months period

Linear regression analysis method was used for trend projection. The analysis provides a
linear equation
Y(t) = b(0) + b(1)t
– Y(t) is the value of the time series at time = t
– b(0) is the intercept or the value of Y(t) at time t = 0
– b(1) is the regression co-efficient or the slope of the line
In this regression analysis, dependent
variable is the number of And the Number of Students in Suresh's class
independent variable is number of 35
months.
30
f(x) = 3.19393939393939 x − 2.46666666666667
25
No. of students

Using Excel the following linear equation 20

is arrived
y = 3.1939x - 2.4667 15
y= no of students during a month 10
x= no of months from start of the classes
5

0
0 2 4 6 8 10 12
Months

Same linear regression equation is used to forecast the number of students in Priya’s yoga
class with multiplication factor of 2 as mentioned.
Priya starts the classes by April 21 with 2 students and 1 batch. The upper limit for the batch
is 20 students. so whenever the number of students exceeds multiple of 20 new batch is
started.

2
BITS Pilani
MBAZC416 Managerial Economics Assignment 1- case Study

By the end of the 18-month period in September 21, there will be a total of 110 students
enrolled and the number of batches will be 6.
.

Business forecast for Priya -18 months

120 7

100 6

5
80
4

Numder of Batches
No. Of students

60
3
Priya Forecast
40
2

20 1

0 0
1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2
pr-2 ay-2 un-2 ul-2 ug-2 ep-2 ct-2 ov-2 ec-2 an-2 eb-2 ar-2 pr-2 ay-2 un-2 ul-2 ug-2 ep-2
A M J J A S O N D J F M A M J J A S

b) Developing cost schedule for Priya showing variable cost and fixed cost
Advertisement cost of Rs 50000 is one-time fixed cost and taken during the first month
Opportunity cost is variable and is Rs 30000 per batch. Priya’s opportunity cost per Hr Rs
3000 multiplied by 10hrs per batch in a month. Following table shows the cost schedule in
Rs.
Month No. Of No of Mntly Cumulative Cumulative Total cost Cumulative
students Batches Variable Variable cost Fixed Cost Individual total cost
cost month
Apr-21 2 1 30000 30000 50000 80000 80000
May-21 8 1 30000 60000 50000 30000 110000
Jun-21 14 1 30000 90000 50000 30000 140000
Jul-21 20 1 30000 120000 50000 30000 170000
Aug-21 28 2 60000 180000 50000 60000 230000
Sep-21 34 2 60000 240000 50000 60000 290000
Oct-21 40 2 60000 300000 50000 60000 350000
Nov-21 46 3 90000 390000 50000 90000 440000
Dec-21 52 3 90000 480000 50000 90000 530000
Jan-22 58 3 90000 570000 50000 90000 620000
Feb-22 66 4 120000 690000 50000 120000 740000
Mar-22 72 4 120000 810000 50000 120000 860000
Apr-22 78 4 120000 930000 50000 120000 980000
May-22 84 5 150000 1080000 50000 150000 1130000
Jun-22 90 5 150000 1230000 50000 150000 1280000
Jul-22 98 5 150000 1380000 50000 150000 1430000
Aug-22 104 6 180000 1560000 50000 180000 1610000

3
BITS Pilani
MBAZC416 Managerial Economics Assignment 1- case Study

Sep-22 110 6 180000 1740000 50000 180000 1790000

c) Computing breakeven point for Priya

The breakeven point is the level of output at which the costs are equal the revenues for a
product. Following chart shows the comparison of cummulative revenue with the
Cummulative total cost. Initially the Cummulative total cost curve is higher than the
Cummulative revenue curve, during this period Priya’s class business will be in loss. Further
with period the gap between the curve reduces and post Feb 22 the revenue curve crosses
over the cost curve turning the business into profitable . hence the breakeven point will be in
month on March 22.

Cummulative Revenue and Cost

2200000
2000000
1800000 Cummulative total Cost
1600000 Cummulative Revenue
1400000
1200000
1000000
800000
600000
400000
200000
0
1 1 21 1 21 21 t-21 21 21 22 22 r-22 r-22 22 22 2 22 22
pr-2 ay
-2 n- ul- 2 g- p- c ov- e c- n- b- a p a y- n- ul-2 g- p-
A J u J A u S e O N D J a F e M A J u J A u S e
M M

4
BITS Pilani
MBAZC416 Managerial Economics Assignment 1- case Study

Following table shows the distribution of the costs and revenue over the 18 months.
Month No. No of Total Total Profit Cummulati Cummul Cumm Cummu Cummul
Of Batches mntly cost during ve ative ulativ lative ative
stude Revenu Individu each Revenue total e student- Classes
nts e al month month cost Profit months

Apr-21 2 1 4000 80000 -76000 4000 80000 -76000 2 10

May-21 8 1 16000 30000 -14000 20000 110000 -90000 10 20
Jun-21 14 1 28000 30000 -2000 48000 140000 -92000 24 30
Jul-21 20 1 40000 30000 10000 88000 170000 -82000 44 40
Aug-21 28 2 56000 60000 -4000 144000 230000 -86000 72 60
Sep-21 34 2 68000 60000 8000 212000 290000 -78000 106 80
Oct-21 40 2 80000 60000 20000 292000 350000 -58000 146 100
Nov-21 46 3 92000 90000 2000 384000 440000 -56000 192 130
Dec-21 52 3 104000 90000 14000 488000 530000 -42000 244 160
Jan-22 58 3 116000 90000 26000 604000 620000 -16000 302 190
Feb-22 66 4 132000 120000 12000 736000 740000 -4000 368 230
Mar-22 72 4 144000 120000 24000 880000 860000 20000 440 270
Apr-22 78 4 156000 120000 36000 1036000 980000 56000 518 310
May-22 84 5 168000 150000 18000 1204000 1130000 74000 602 360
Jun-22 90 5 180000 150000 30000 1384000 1280000 104000 692 410
Jul-22 98 5 196000 150000 46000 1580000 1430000 150000 790 460
Aug-22 104 6 208000 180000 28000 1788000 1610000 178000 894 520
Sep-22 110 6 220000 180000 40000 2008000 1790000 218000 1004 580

It is clear the first 3 month of Priya’s business will be in loss due to lesser number of students
not covering the opportunity cost.
During month of July 21 there will be profit but dwill not be sustained as the number of batch
will increase to 2. Only after Sept 21 Priya will reporte profit in every month.

But for cummulatve profit the initial fixed cost of advertisement of Rs 50000 had to be
covered, And as it is sen in th above table the total revenue will be higher then total
cummulative cost only in the month of March 22. The same inference is drawn from the
graphycal representation.

More Precisely
During the month of March 22 when the business will breakeven following are the details.
Cumulative total cost is A   860000
revenue per student/month B   2000
Total student-month required for breakeven C C= A/B 430
No of cumulative Student till previous month of Feb 22 D   368
No of students required in month of March 22 to breakeven E E=C-D 62

So, in March 22 if there are 62 students in place of 72 ( as per the forecast) there will be
no cumulative profit or Loss.

d) Computing Producer Surplus of Priya

Producer Surplus is the difference between the actual price realization of the producer
and the minimum price at which he is willing to sell.

5
BITS Pilani
MBAZC416 Managerial Economics Assignment 1- case Study

In case of Priya if she is willing to teach students

Yoga for Rs 1500 per month where the actual fee
is Rs 2000 the producer Surplus per student will
be
Producer Surplus = 2000 – 1500
= 500 Rs

e) Computing Consumer Surplus of Students

Consumer Surplus is the difference between the maximum
price that the customer is willing to pay and the price that
he actually pays (i.e. what is being charged)

In case of the case study is the students are willing to pay

For Yoga class Rs 3000 per month where the actual fee
is Rs 2000 the Consumer Surplus of the student per month will
will be
Consumer Surplus = 3000 – 2000
= 1000 Rs

f) Indifference curve between the online minutes of delivery and offline minutes of
delivery in the month.

An indifference curve shows a combination of two goods that give a consumer equal
satisfaction and utility thereby making the consumer indifferent. Along the curve, the
consumer has an equal preference for the combinations of goods.
The basic Properties of indifference curves are
1. It slopes downwards from left to right
2. It is convex to the origin
3. It cannot intersect with another indifference curve
In our case the goods are Online and offline yoga class hours. based on the data
provided following is the combination with which the students will get equal amount of
utility through training. The two goods online and offline class hrs are perfect substitutes.

Total 600 min per batch per month

Compensating
Online Balance offline
Indifference curve Online & Offline
Mins Mins minutes minutes of delivery
0 600 558 600

60 540 477 500

120 480 403
400
180 420 336
Offline Hrs

300
240 360 275
300 300 220 200
360 240 170 100
420 180 124
0
6 480 120 81 0 100 200 300 400 500 600 700
BITS540
Pilani 60 40 Online Hrs
600 0 0
MBAZC416 Managerial Economics Assignment 1- case Study

Conclusion

Through the case study, it was able to address various aspects of the Managerial Economics
and learn its practical applications.
Through Linear regression analysis it was possible to forecast the numbers of Students over
18 months. The concepts of variable and fixed cost and opportunity cost and its implications
for profitability were used together with the calculation of the break-even point. Also
reviewed the understanding of supplier and consumer surplus and the application of
indifference curves.

Thank You

7
BITS Pilani