ECO704 -Managerial Economics

SEMESTER FALL 2019 MANAGERIAL ECONOMICS (ECO704) ASSIGNMENT # 1 Due date: 3 Dec 2019 Marks: 10 CASE 1: IGI Insurance offers mail-order automobile insurance to preferred-risk drivers in any area of Pakistan. The company is the low-cost provider of insurance in this market but doesn’t believe its Rs.750 annual premium can be raised for competitive reasons. Its rates are expected to remain stable during coming periods; hence, P = MR = Rs.750. Total and marginal cost relations for the company are as follows: TC = 2,500,000 + 500Q + 0.005Q2 MC = ΜTC/ΜQ = 500 + 0.01Q A. Calculate the profit-maximizing activity level. B. Calculate the company’s optimal profit level and optimal profit as a percentage of total sales revenue (profit margin). (Marks: 2 + 3) CASE 2: Etehad Group of Companies has been on the forefront of design and development, by coming up with new products and increasing presence in all its featured markets. Established in Lahore in year 1957, today the Etehad Group of Companies is one of the largest consumer goods companies of Pakistan. Its products have proven themselves in functional performance parameters set by international industry experts. With the vision to become leaders of the industry, Etehad strives to make each of its products, with careful R&D and intensive innovation. Company has a constant sales growth rate of 35% and it wants to forecast the sales level for year 2019 based upon previous years (2010-2018) sales pattern that is given in the following table: Actual Sales (in millions) Years 2010 25 2011 27 2012 23 2013 20 2014 22 2015 18 2016 23 2017 29 2018 28 a) Forecast sales level of Etehad Company for 2019 through exponential smoothing by using 0.4 and 0.6 weights for actual values. b) Analyze which weight is more feasible for data forecasting? IMPORTANT NOTE: (Marking scheme: 3+2) 24 hours extra / grace period after the due date 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.  Any submission made via email after the due date will not be accepted. FORMATTING GUIDELINES:  Use the font style “Times New Roman” or “Arial” and font size “12”.  It is advised to compose your document in MS-Word format.  You may also compose your assignment in Open Office format.  Use black and blue font colors only. RULES FOR MARKING Please note that your assignment will not be marked if,  It is submitted after the due date.  The file you uploaded does not open or is corrupt.  It is in any format other than MS-Word or Open Office; e.g. Excel, PowerPoint, PDF etc.  It is cheated or copied from other students, internet, books, journals etc. 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. Best of Luck!