ACC6007 Manage Economics OZ Assignment Help

ACC6007 Manage Economics OZ Assignment Help

ACC6007 Manage Economics OZ Assignment Help

Question 1

Quality is not free, is stated that an individual who wants a high quality of products and services must be willing to pay extra money for it. It should be noted that quality is not considered as a parameter which can be negotiated with the consumers, because of competition companies need to focus more on the quality of the product and the benefit which it will offer to the customers. This involves additional cost to the company as they wanted to provide the best quality to their customers, they may have to spend more on the quality of raw materials, have a quality inspection department, quality engineers etc. this involves more additional cost to the company. However, the cost associated with these is termed as opportunity cost.(Baye 2013). Moreover the production possibility frontier states that the maximum output can be reached only when the resources are effectively managed. Since the allocation of quality teams involves in reallocation of resources, the firm need to evaluate whether such reallocation will greatly benefit the company and the product, the management need to evaluate whether such factors will enhance the market for the product and fetch more profits for the organisation.

Question 2

The case presented with two options to the company, in case if the company chooses to focus on the improvement of the process of making ice cream, this will enable the firm to be highly competitive. However, the improvement needs additional cost for the company and they may have to forego the business during the peak summer seasons, which is an opportunity cost for the firm. During these times, the company may not able to supply the ice cream to the customers when there is high demand, the competitors will start selling more ice creams in the market and will have higher market share. But it should be noted that this is situation is short lived, because when the company has completed the improvement it will provide the company a unique advantage to the organisation, which will enable them to offer better quality ice cream to the customers and can increase their market share which they have lost during the summer season. (Allen 2012)

Furthermore, if the company concentrates in focusing only on the customers and aim to procrastinate the improvement in technology, the company can concentrate to sell the ice cream with the current technology, however due to poor technology the customers may not prefer the product and the company may tend to lose its market share in the short run, this will make the company to focus in investing in the new technology therefore the quantity supplied will again decrease.(Schindler 2013)

ACC6007 Manage Economics OZ Assignment Help

(Froeb 2013)

Question 3

The question has stated that the university chancellor is worried on the increase in the cost therefore the management is looking to increase the revenue. In case if the revenue is increased, it should be noted that the cost will also tend to increase which make the profit intact. For example, in the table below we can state that

Particulars

Amount

Revenue

100

Cost

70

Profit

30

Profit margin

30%

Assuming the revenue is $100, the total cost is $70, the profit turns out to be $30, which states that the profit margin is 30%.

Say for example, the management decides to increase the revenue by 10% and assuming that the cost is also increasing at the same rate then,

Particulars

Amount

Revenue

110

Cost

77

Profit

33

Profit margin

30%

The revenue will be $110, with cost at $77, this makes the profit at $33. Though it is noted that the profit has increased by $3, it must be clearly noted that the profit margin is the same before the price increase. It should be noted that if the revenue and cost increase in the same %, then the profit margin will not increase, it will remain the same.

On the other hand if the revenue is increased by 10%, the cost increases only by 5% then

Particulars

Amount

Revenue

110

Cost

73.5

Profit

36.5

Profit margin

33%

The revenue increase to $110, whereas the cost is $73.5, the profit is $36.5, which makes the profit margin increase marginally by 33%. Therefore, the university management should clearly focus in increasing the revenue and control the cost which is less than the revenue, so that the university can achieve its objective of increasing the revenue and profitability.

Question 4

a.Equilibrium

Price

Quantity demanded

Quantity supplied

25

100

500

20

200

400

15

300

300

10

400

200

ACC6007 Manage Economics OZ Assignment Help

From the above table and the graph it is noted that at the price of $15, the quantity demanded intersects the quantity supplied which were at 300 million of kilos. Therefore this point is considered as the equilibrium point and it is represented as E (Thomas 2012)

b.Support price of $20

A support price is stated as the minimum guaranteed price which the producer gets for a stated products which is offered in the market. Also stated is that the support price is the minimum price which the seller can charge. From the above table it is noted that the equilibrium price is $15. If the support price is higher than the equilibrium price then the seller will be at profit as it is more than the minimum price range, also at the price of $20, the quantity demanded is 200 million of kilo and the supply will be at 400 million kilo, this enables that the demand is less than the supplied. Therefore there will be more unsold stock in the market. Therefore, the government may take steps to reduce the price so that the demand and supply intersects.

ACC6007 Manage Economics OZ Assignment Help

c.If the government makes the support price at $20, which is above than the equilibrium price of $15. At the rate of $20, the quantity demanded is less than the quantity supplied. Since the quantity demanded is less than the quantity supplied there will be more stock available in the hands of the sellers, Also the sellers could not able to reduce the price in order to push the goods to the buyer as the support price is fixed by the government and no seller can sell the product below than the support price. Due to this condition there will be more unsold stocks and this will create loss to the sellers.(Baye 2013)

d.If the government decides to keep the price ceiling at $10, it is less than the equilibrium price of $15. At the rate of $10, the quantity demanded is 400 million of kilos whereas the supplied 200 million kilos. Since the price is less many customers will be willing to buy the product, however the supply is very less. By keeping a price ceiling of $10, the suppliers will not get the required price which will able to cover their cost and earn some profits. 

ACC6007 Manage Economics OZ Assignment Help

e.By introducing the price ceiling the government intends to keep price ceilings for protecting the interests of the customers, a low price will affect the suppliers in the market and they may not provide the adequate quantity in the market. Producers intends to reduce their production as they may not get the cost covered, this will lead to increased demand in the market and the supply will be very less.

Question 5

a.Accounting profit

Particulars

 

 Amount

Total sales of Hot Buns

 

           300,000

Expenses

 

 

Staff wages

           60,000

 

Input costs

           40,000

 

Other cost

           10,000

           110,000

 

 

 

Total Profit (Accounting)

 

           190,000

The total revenue was around $300,000. The expenses were mainly the wages paid to the employees at 60,000; material cost of inputs were at $40,000 and other cost were estimate at $10,000. This makes the total expenses at $110,000. Therefore the accounting profit is the total revenue of 300,000 less total expenses of 110,000, so the net profit is $190,000

b.Economic profit

Particulars

 

 Amount

Total sales of Hot Buns

 

           300,000

Expenses

 

 

Staff wages

           60,000

 

Input costs

           40,000

 

Other cost

           10,000

           110,000

 

 

 

Opportunity cost

 

 

Salary as computer consultant

         100,000

 

Interest from savings

           25,000

           125,000

 

 

 

Total Profit (Economic)

 

             65,000

c.The opportunity cost of Belinda is 125,000. The first aspect to be considered is the salary which Belinda may be receiving as Computer consultant which is estimated at $100,000. The next opportunity capital is the savings which Belinda has in her savings, the total savings used to start the business is 500,000 which earns a interest of 5%, the total interest is arrived at $25,000. Therefore, the total opportunity cost s 125,000. It is noted that even after deducting the opportunity cost, the economic profit is $65,000. Therefore it can be stated that Belinda has taken sound economic decisions.(Froeb 2013)

d.The cross price elasticity of demand is considered as the changes in the quantity demanded for a given product with respect to the change in the price of another product. If the cross price elasticity of demand is -2, then it can be stated that the two products are complementary products, because if the price of product A increases the demand for product B decreases. The example can be DVD players and DVDs. (Gillespie 2010)

e.If the cross price elasticity of demand is positive then it can be stated that if the price of one product increases, then the demand for another product increases. It is noted that this will happen for substitute goods. The substitute products can be Burgers from Burger King and KFC or the most common can be the cola drinks of Coke and Pepsi.

Question 6

a.Table

Total Product (Q)

Total Fixed Cost

Total Variable cost

Total cost

Change in total cost

Change in quantity

Marginal cost

Average fixed cost

Average variable cost

Average total cost

0

70

0

70

 

 

0

0

0

0

1

70

20

90

20

1

20

70.00

20.00

90.00

2

70

35

105

15

1

15

35.00

17.50

52.50

3

70

45

115

10

1

10

23.33

15.00

38.33

4

70

50

120

5

1

5

17.50

12.50

30.00

5

70

60

130

10

1

10

14.00

12.00

26.00

6

70

80

150

20

1

20

11.67

13.33

25.00

7

70

115

185

35

1

35

10.00

16.43

26.43

8

70

145

215

30

1

30

8.75

18.13

26.88

9

70

185

255

40

1

40

7.78

20.56

28.33

Total variable cost = Total cost – Fixed cost

Marginal cost = Change in total cost / Change in quantity (Baye 2013)

Average fixed cost = Total fixed cost / Total product

Average variable cost = Total variable cost / Total product

Average total cost = Total cost / Total product

b.Graph

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c.It can be briefly stated that the long run average total cost will be lesser for app designer when compared with coal mines. This is because the outlay of cash will be high in case of coal mines, as the cost of mining will increase based on the depth of the land from where the coal is being mined, however in case of app designer the short run total cost will be high as they need to install various infrastructure and technology, however once the app gets installed and began to make revenue then the total cost will reduce in the long run

References

Allen, B. (2012). Managerial Economics: Theory, Applications, and Cases. Nortin & Company.

Baye, M. (2013). Managerial Economics & Business Strategy. McGraw Hill.

Froeb, L. M. (2013). Managerial Economics. Cengage.

Gillespie, A. (2010). Business Economics. Oxford Press.

Schindler, R. (2013). Pricing Strategies. McGraw Hill.

Smith, T. (2011). Pricing Strategy. Cengage Learning.

Thomas, C. (2012). Managerial Economics: Foundations of Business Analysis and Strategy. McGraw Hill.