SOLVED ECO404 Assignment 1 Solution and Discussion

SEMESTER FALL 2019
MANAGERIAL ECONOMICS (ECO404)
ASSIGNMENT
DUE DATE: 25 NOVEMBER, 2019
Case 1:
Competition is a subject always open to debate in health care, and pharmaceuticals are no exception. Price competition in the pharmaceuticals supplies industry is growing rapidly in the increasingly priceconscious new millennium. Ferozsons is one of the leading companies in Pakistan maintaining exclusive agreements with a number of international partners for distribution, selling and comanufacturing of surgical products. During the past year, Ferozsons sold 7 million (700, 000, 0) units of surgical products at a price of $13.50, for total revenues of $85 million. During the current year, sale of units of surgical products have fallen from 7 million (700, 000, 0) units to 4.6 million (460, 000, 0) units following a competitor price cut from $12.95 to $10.50 per unit.
Requirement:
a. Calculate the arc cross price elasticity of demand for surgical products of Ferozesons.
b. Marketing Director of surgical system in Ferozsons, projects that unit sale will recover from 4.6 million (460, 000, 0) units to 5.8 million (580, 000, 0) units if Surgical Systems reduces its own price from $13.50 to $12.50 per unit. Calculate Surgical Systems’ implied arc price elasticity of demand.
(Marks: 4+4)
Case 2:
PEL prides itself on innovative home appliances geared towards the modern consumer. With the start of winter season PEL has announced 2% discount off the average price of refrigerators sold during the month of October in an effort to reduce excess endofthe modelyear inventory. Customer response was wildly enthusiastic, with unit sales rising by 20% over the previous month’s level.
Requirement:
a. Calculate the point price elasticity of demand for PEL refrigerators sold during the month of August.
b. Calculate the profitmaximizing price per unit if PEL has Rs.30, 600 marginal selling costs.
(Marks: 3+4)IMPORTANT:
24 hours extra / grace period after the due date is usually available to overcome uploading difficulties. This extra time should only be used to meet the emergencies and above mentioned due dates should always be treated as final to avoid any inconvenience.
OTHER IMPORTANT INSTRUCTIONS: DEADLINE:
Make sure to upload the solution file before the due date on VULMS. Anysubmissionmadeviaemailaftertheduedatewillnotbeaccepted.
FORMATTING GUIDELINES:
Usethefontstyle“TimesNewRoman”or“Arial”andfontsize“12”. ItisadvisedtocomposeyourdocumentinMSWordformat.
YoumayalsocomposeyourassignmentinOpenOfficeformat.
Useblackandbluefontcolorsonly.
RULES FOR MARKING
Please note that your assignment will not be graded or graded as Zero (0), if:
Itissubmittedaftertheduedate.
Thefileyouuploadeddoesnotopenoriscorrupt.
It is in any format other than MSWord or Open Office; e.g. Excel, PowerPoint, PDF etc.
Itischeatedorcopiedfromotherstudents,internet,books,journalsetc. Note related to load shedding: Please be proactive
Dear students!As you know that Pre‐ Mid‐Term semester activities have started and load shedding problem is also prevailing in our country. Keeping in view the fact, you all are advised to post your activities as early as possible without waiting for the due date. For your convenience; activity schedule has already been uploaded on VULMS for the current semester, therefore no excuse will be entertained after due date of assignments, quizzes or GDBs.

ECO404 Assignment Idea Sol 2019
Case 1:
Competition is a subject always open to debate in health care, and pharmaceuticals are no exception. Price competition in the pharmaceuticals supplies industry is growing rapidly in the increasingly priceconscious new millennium. Ferozsons is one of the leading companies in Pakistan maintaining exclusive agreements with a number of international partners for distribution, selling and comanufacturing of surgical products. During the past year, Ferozsons sold 7 million (700, 000, 0) units of surgical products at a price of $13.50, for total revenues of $85 million. During the current year, sale of units of surgical products have fallen from 7 million (700, 000, 0) units to 4.6 million (460, 000, 0) units following a competitor price cut from $12.95 to $10.50 per unit.
Requirement:
a. Calculate the arc cross price elasticity of demand for surgical products of Ferozesons.
b. Marketing Director of surgical system in Ferozsons, projects that unit sale will recover from 4.6 million (460, 000, 0) units to 5.8 million (580, 000, 0) units if Surgical Systems reduces its own price from $13.50 to $12.50 per unit. Calculate Surgical Systems’ implied arc price elasticity of demand. (Marks: 4+4)
Case 2:
PEL prides itself on innovative home appliances geared towards the modern consumer. With the start of winter season PEL has announced 2% discount off the average price of refrigerators sold during the month of October in an effort to reduce excess endofthemodelyear inventory. Customer response was wildly enthusiastic, with unit sales rising by 20% over the previous month’s level.
Requirement:
a. Calculate the point price elasticity of demand for PEL refrigerators sold during the month of August.
b. Calculate the profitmaximizing price per unit if PEL has Rs.30, 600 marginal selling costs. (Marks: 3+4)Answer (A)
Arc Price elasticity of demand (responsiveness of demand) formula is
% ∆Q/%∆Price = ((Q2Q1/average quantity)*100)/(p2p1/average price)*100
Competitive price cut Surgical products of Ferozson,s quantity demand
$ 12.95 70,00,000
$10.50 46,00,000Arc elasticity of demand = (46000007000000/5800000)*100 = 2400000/5800000 = 41.37
(10.5012.95/11.72)*100 = 2.45/11.72 = 20.90
Arc elasticity of demand = 41.37/ 20.90
= 1.97
Note: If price of surgical products of competitive company decreases by 1% then quantity demand of surgical products of Ferozsons will be decrease by 1.97%(B)
Price changes in ferozsons quantity demand changes
P1 13.50 Q1 4600,000
P2 12.50 Q2 5800,000Arc price elasticity= ( 5800,0004600,000/5200000)*100 = 23.07%
= (12.5013.50/13) * 100 = 7.69%
Arc price elasticity= 23.07/7.69
= 3 absolute value is 3
Note: If ferozsons decreases price by 1 % , quantity demand increases by 3 % . If ferozsons decreases price by 10% ,quantity demand will increase by 30%.Case : 2
(A)
Pel refrigerators:
%∆Q = 20%
%∆P= 2%
Point Price elasticity of demand = ((Q2Q1/Q1)*100)/(p2p1/P1)*100
= .20/.02
Ped = 10 absolute value is 10(B)
έ= elasticity
Marginal cost = 30600
έ = 10Profit maximizing price = Mc (έ/ έ+1) = Mc/ (1+1/ έ)
= 30600 (10/10+1
=306001.111111
P = 34000 
@zareen said in ECO404 Assignment 1 Solution and Discussion:
a. Calculate the arc cross price elasticity of demand for surgical products of Ferozesons.