ECOM 152 (2022)

Main Examination Period 2022 – May - Semester B

ECOM 152 Practical Asset Pricing Duration: 3 hours

Answer ALL the three questions

Cross out any answers that you do not wish to be marked

THIS IS AN OPEN BOOK EXAMINATION TO BE CONDUCTED ONLINE. YOU MAY

REFER TO ANY OF THE COURSE MATERIALS, OR ANY OTHER SOURCE OF
INFORMATION. YOU MAY ALSO USE A SPREADSHEET OR CALCULATOR.

PLEASE ENSURE THAT YOUR WORKING IS CLEARLY SHOWN WITH ALL

STEPS OF YOUR CALCULATION INCLUDED IN YOUR ANSWER DOCUMENT,
INCLUDING ANY FORMULA USED.
ANSWERS ARE TO BE TYPED AND SUBMITTED TO BOTH QMPLUS &
EMAILED TO: ECOM152-exam@qmul.ac.uk

When writing formulas, please note the following:

It is acceptable to use the standard alphabet rather than greek letters. The following
are recommended: m for μ, s for σ, w for ω, r for ρ, d for Δ, b for β.

For mathematical operators: add +, subtract -, multiply *, and divide /

Where appropriate, use an underscore to indicate a subscript, eg r_f .

Use the ^ character for power, eg x^2 for x2, x^0.5 for √x.

As an alternative to x^.5 you may type sqrt(x).

Use brackets as necessary. To make your answer clearer use different brackets where
appropriate, eg [] {} ()

Examiner: Fabio Calonaci

© Queen Mary University of London, 2022

Page 2 ECOM 152 (2020)

Question 1 [30 marks]

The government of Selgina is serious about drugs. Possession of drugs is

illegal and is severely penalized. However, a black market exists which the
government has failed to dismantle despite serious attempts. Khusenichho
Chamling, the health minister, is worried about the situation.
In early 2021, a consultant working with health ministry suggested that the
government should increase the price of a pack of cigarettes from 200 Selgina
dollars (S$) to S$600.
A survey conducted in December 2021 suggested that over the year, the
quantity demanded of marijuana decreased from 2,000 kgs per day to just 800
kgs.

a) Define, explain and calculate the cross elasticity of demand [5 marks]

b) Explain why the policy has proved so effective. [10 marks]

c) Explain how Price Elasticities can help improving pricing? Define the
concept and describe the different types of elasticities. [15 marks]

Question 2 [30 marks]

A) From the data shown in Table below about demand for smart phones,
calculate the price elasticity of demand from, by using the midpoint method:
point B to point C, point D to point E, and point G to point H. Classify the
elasticity at each point as elastic, inelastic, or unit elastic. [10 marks]

B) Nano Technology Inc. (NNDM) has developed a new 3D printing machine.

NNDM has a probability of crash over a single use of 7.5% while its competitor
of 16.5% over the same use. NNDM has an operating cost/hour of $27; the
competitor is cheaper and requires only $25. If the system crashes this issue
will cost your company $125,000 in the case of NNDM while $130,000 for the
Page 3 ECOM 152 (2020)

competitor. You are planning to use this 3D printer for 1,750 hours. NNDM’s
price is $125,000. What is the EVC for NNDM? [10 marks]

C) Define and discuss the concept of Economic Value to a Customer. Explain

the situations in which you can set the prices close to ECV?
[10 marks]

Question 3 [40 marks]

Identify a real-world company who could profit from an overhaul of their pricing
strategy. Select one sectors from the list below that until now have not thought
thoroughly hard and strategically about pricing.
Sector available to study:
- Aviation industry
- Banking industry
- Delivery industry
- Furniture industry
Think about how you would revolutionize pricing in this industry using the
techniques covered during the lectures.

Prepare a short report designed to persuade the Chief Marketing Officer/Chief

Financial Officer in that industry of how this pricing strategy will revolutionize
their profit model.
[40 marks]

End of Paper