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# MBA FP6008 Assessment 3

Over all a fair submission.

As stated in previous feedback, this is a course in economics, and the competencies that must be mastered in this assessment include the the theories, models, and practices of macro and micro economic theory and practice as they apply to corporate operations to create value for the firm.

What this means is that simple explanations of the formulas and statements that this is the way it is are not enough.

Consider how you would approach the problem if you were tasked to explain the information in the assessment to your CEO or Board of Directors.

You don't walk in and launch into the math or one-two sentence overviews of what is important to them for making real-world decisions.

You introduce the topic, explain what is going to take place/be discussed, and tell them why it is important for their decision-making processes.  Then you tell them; taking the time to explain what is going on in terms that apply to their decision-making and operating activities.

You don't tell them all about the math.

That is what you need to do in these assessments.  Tell about the problems from the point of view applicable to the decision-makers, not a mathematician or accountant.

Economic Problems Set 2
Assessment 3
Capella University

[DJA1]

Assessment 3, Problem A[DJA2] [DJA3]
Elasticity of Demand Formula:

e= [Q2-Q1/(Q2+Q1/2)]/[P2-P1/(P2+P1/2)][DJA4]
The same process applies to elasticity of supply.
Es= %change in quantity supplied/%change in price
Assume that the price of smartphones increased from \$200 to \$222 per unit. The manufacturer decides to supply 12,000 units instead of 10,000. Calculate the price elasticity of supply. Is supply elastic or inelastic?

Quantity Demanded
Change in Quantity
Price
Change in Price
Q2+Q1/2
P1+P2/2
10,000

200

12,000

222

[DJA5]

Price elasticity of supply = [Q2-Q1/{(Q2+Q1)/2}]/ [P2-P1/ {(P2+P1)/2}

Given P1 = \$200, P2 = 222, Q1 = 10,000, Q2 = 12,000 where P1 is initial price and Q1 is initial quantity supplied, P2 is new price and Q2 is new quantity supplied

Es = [12,000-10,000/ [(12,000+10,000)/2]/ [222-200/ [222+200)/2]

Es = [2000/11000]/[22/211]

Es = 0.1818/0.1042

Es = 1.744

Supply is elastic.

Assessment 3, Problem B
Problem B

According to (Ahleresten, 2008, pg[DJA6] 145), a public good is defined as nonrival and nonexclusive. M[DJA7] eaning that an individual’s consumption of a good does not affect any other individual’s consumption of the same good and that it is not possible to exclude anyone from consuming the good. A private good on the other hand is both rival and exclusive. A private good is one that must be purchased in order to be consumed. A public good would best be described as a clean air, parks, public transportation and national defense where the use by one individual does not diminish the availability of the good for other individuals. On the other had a private good is any good that needs to be purchased. An example of a private good would be bread is made for profit and consumed by individuals. The principle characteristic of a public good is Non-rivalry: This means that when a good is consumed, it doesn't reduce the amount available for others and Non-excludability: Which occurs when it is not possible to provide a good without it being possible for others to enjoy. The free rider problem occurs when some individual consume more than their share of a common resource or pay for less than their fair share of that common resource. The local police are a public good because they are there to serve and protect everyone in the community. The local cable TV service is both a public and a private good as it is excludable since you have to pay for it. However, it is also non-rival since other cable users will not affect another individual from using it.

Assessment 3, Problem C
Use the following to answer the questions below:

·         z is the marginal utility per dollar measured in utils, x is the amount spent on product A, and y is the amount spent on product B.

·         Assume MUA = z = 20 – x and MUB = z = 42 – 4y.

·         Assume that the consumer has \$20 to spend on A and B; that is, x + y = 20.

What is the marginal utility per dollar? What is best way to allocate the expenditure of the \$20?

MUA=MUB

20-x=42-4y

4y-x=22  (equation 1)

x+y=20

x=20-y (equation 2)

Substituting equation 2 in equation 1, we get:

4y-20+y=22

5y=42

y=42/5=8.4

Substituting the value of y in equation 2 we get,

x=20-8.4

x=11.6

The best way to allocate the \$20 would be \$11.6 on  product A and \$8.4 on product B.

References:

Ahleresten, K. (2008). Essentials of microeconomics. In K. Ahleresten, Essentials of microeconomics.[DJA8]  http://bookboon.com/en/textbooks/economics/microeconomics-uk. doi:http://bookboon.com/en/textbooks/economics/microeconomics-uk

[DJA1]All submitted written work must include an introduction. Include all relevant facts, dates, persons, et cetera, and a statement of what you are doing and why. Avoid using the first person (Problem Preparation and Submission Guidelines, para. 2).
[DJA2]DO NOT write like a student answering questions for a course.

Write like the submission is going to the top person in the company, board of directors, head decision-maker for his/her approval.

Introduce the topic, tell what is going to be told about, why it is being told about, and why it should matter to the reader

Tell:  Build the information systematically (& succinctly), transition from each paragraph to the next, and lead the reader where you want them to go through the organized, to the point presentation of facts.

Tell what was told about. Present the conclusion (based on provable (& cited) facts). Make a recommendation if called for (again based on the facts and purpose of the document), and leave the reader feeling as if he/she made the decision.

Present Tables and large figures in Appendices or Exhibits (one table per Appendices/Exhibit, no more figures than will fit on a single page per Appendices/Exhibit).
[DJA3]
[DJA4]Do not type formulas, equations, and calculations or show math or equal signs. Your client is not interested in reading formulas. (Problem Preparation and Submission Guidelines, para. 4).
[DJA5]Table: In APA writing this is a Table and requires a specific Table Heading (APA 6e, p. 127-150).
[DJA6]Does not follow APA 6th Edition for p. format in a citation.
[DJA7]Does not follow APA 6th Edition for sentence spacing.
[DJA8]This is not the publisher.