Managerial economics

Managerial economics Question I Why would a unfluctuating aim to re principal(prenominal) in an constancy in which it makes an economic make headway of zero? Name a Vietnamese hearty that does this.A truehearted depart make an economic derive of zero if its sale is a normal profit. In former(a) words, it cover both forbidden of dismissal expense and its opportunity apostrophize or report profit partakes the opportunity greet. It means that economic = 0 which be called normal profit. Suppose that, be profit exceeds the opportunity apostrophize is called economic profit, beside that, accounting profit slight than opportunity personify is called economic loss.In oblivious run, a go with want to maximize its profit (or minimize its loss) should produce at a certain aim where gibeitional r veritable(a)ue is equal to the additional cost of producing as MR = MC rule. However, the food market legal injury is not always estimatemly high, the participation get an e conomic profit. So it will face to out put impairment at the normal profit or crimson operating loss.The company gets an economic profit of zero when the price equals the ordinary cost (AC) or following the formula MC = MR = P = AC. At this era, the its sale covers fix cost, varible cost and opportunity cost so that, the devoted remains in an industry and to get economic income in early.In Vietnam, firms sell its product with high competition market in the main farm maket. They sell its product at the the profit only decent for their opportunity cost. Beca uptake of all close this com collapse atomic number 18 belong the state company, so that, managers atomic number 18 requested to get profit at least equal interest localise. They must ensure their workersalary. Question II How realistic is the premise of constant variable unit costs in volume cost profit abridgment? Does it detract a great deal from the judge of this analysis? What is a large volume firm in Vietnam that credibly has a variable unit cost?Volume cost profit analysis is an economic analysis which is use in sure situation. It label the affect of change in quantity of product on cost and profit. It bases on some limiting assumptions when the price, total variable cost are constant. So the firm whitethorn forcast its cost and sales. Conducting a break even analysis is a formula of simple math as spread even Point = Fiwed Costs / (Unit Selling Price Variable Cost) As Keat and Young (2009) wrote, if we assum the relationship between mediocre variable cost and price for each product remains the same and the quantities of various products are produced in constant proportions, such as assumption does not appear to be unrealistic for relatively small changes in total revenue. However, as we known, if the company produces to a greater extent than a product, which each of products has a different price and a different variable cost. So we not use to a higher(prenominal) place formular to caculate Break even Point. But others strike it like the most way.This analysis does not detract form its value in assumption. All most of firms in Vietnam are at small or medium size. They acquit variable cost and produce expert one or ii products. They can estimate the quantity of each at constantproportion and use average variable cost per unit to caculate the Break even Point. Question terce Price discrimination is often defended on the basis of equity. What is meant by this rehearsal? Comment on its validity in borders of a the States company selling some products in Vietnam in relatively cheaper prices than in the USA.Price discrimination is a statement which an identical product is interchange in different market at different prices. There are three dots price discrimination.First degree of price discrimination, the firm will charge prices along demand curve all the way to the acme where demand equals marginal cost. Second degree of price discrimination happen s when a company use a differential price by bend of service. For example in telecommunication fields in Vietnam, the price of premiere block of 30s per a call is different from the next block afterwards 30s.Third degree of price discrimination is the most popular. The production may go up if the demand curve is not straight line. So customers willing to pay at low price to get the emolument than in condition of a single price monopoly, beside that, others will pay higher prices in lower price. USA firms sell several(prenominal) products in Vietnam with cheapper prices than in the USA. For example the Microsoft sofware is sold in Vietnam with cheapper prices than in the USA. Almost Vietnamese can get it while in America, they can not affort to buy. Because the Vietnam market is more competitive than USAmarket. And finally, the demand curve in Vietnam market is more elastic than USAmarket. Question IV Briefly explain the coordinate- charter-performance near to the call for o f industrial economic. How does this approac fit in the Vietnamese economy? The structure consume performance (S-C-P) is employ to connect elements of market structure to performance in industrial economics. On the other hand, this structure studies the way that firms and markets are nonionized and affected to the economy from drumhead of view of social welfare.The industry structure is the basic of S-C-P which include buyer and seller concentration, product differentiation, condition of entry, and the grab of demand for the product. Performance is the measured in terms of welfare maximization. Besides, conduct is reqired pricing strategies, promotion, advertising, product development, legal tactics, and choice of product as healthy as the potential for collusion among companies.As Keat and Young (2009) pointed out that An in dusstry market with great concentration will fall far short of reaching such a goal. Its performance will be mark by both productive and allocative inef ficiencies. Price will be in a higher place marginal cost, the choice and ultimately profits will be higher than under competitive circumstances. This high level of profitability arises from the industrys pricing constitution and not because of any cost advantages. (p. 374).The outcome of S-C-P method is that high industry concentration becomes a cause for the intervention of brass against possible mergers.In Vietnam, the S-C-P approach is applicable for strategy researchers. It helps to evaluate the existence of competition in the industry, moreover, it measures the performance of industry and finds out its potential. Question V Suppose the Sri Lanka presidential term activity awarded contracts to private companies to rebuild the countrys infrastructure damaged by the tsunami and it establish its contracts on a luck of the cost of the reconstruction. Would this constitute a moral pretend? If so, what would the government need to do to prevent such a hassle? Are these kinds of cost plus contracts utilize in Vietnam? By whom?The term of Mral hazard is appeared when a loan is made the private companies may choose to change transaction. Then, this company receive the loan, it is easier to get the money to use other purposes.Sri lanka government awarded contracts to private companies to rebuild the countrys infrastructure damage by the tsunami and it based its contracts on a percentage of the cost of reconstruction. This situation it a cost-plus price practive. In other words, the private firm will caculate the varible cost, add to it an allocation for fixed cost, after that add a profit percentage to reach a total cost of the contract. May be tip to the prolem of moral hazard so that, private firms will try go down its cost due to increase their earning. Consequently, the projection is the lower quality. The government have to consider closely and enforce a quality level after the contract is signed. There are many contruction in Vietnam which Vietna mese government awards contracts to build such as buildings, bridges and highways. They in like manner utilise the cost-plus pricing in contracts. However, to avoid the problem of moral hazard, the government may choose prestigious companies and apply o procedure to control better quality of projects. Question VI How is the companys best groovy cipher determined? Does the decision- make process in this case resemble the procedure used in determined the price and quantity of output? How?The key of optimal swell bubget determined is the evaluating worth of investment projects. It means that capital project must be used correctly the cash flow and the time value of money. There are twain methods which are considered as the payback method and the accounting rate of transcend method.The payback method aim the period of time essentially to get back the original investment.The accounting rate of return method is outcome (percentage) from average annual profits. These methods cu t cash flows to the net present value (NPV), internal rate of return (IRR) and profitability index (PI).There is a capital budgeting model which companies should use to optimize capital budgeting plan. Every project will be used internal rate of return (IRR) due to compare with marginal cost of capital (MCC) to search the optimal point on the graph.(with the vertical axis vertebra is IRR and MCC, the horizontal axis is the investment capital) where the capital budgeting of the firm is optimixed.When IRR = MCC, at that time, that is the point of the optimal investment budget.In addition, it also similar the procedure used in determing the price and quatity of out put, the company should operate a efficacy where the marginal revenue (MR) equas the maginal cost (MC), MR = MC. much importantly, firms should do the amount of the investments at the point where the internal rate of return (IRR) equals the marginal cost of capital (MCC), IRR = MCC. Question VII Explain the difference bet ween the Moving Averrage approach and Exponential smoothing approach to reckoning. Which do you think would be better for your company? Why?The moving average approach and exponential smoothing approach is also called smoothing method. This method use an averrage of past observation to forecast future if we consider that the future is the reflection of several of past give.Acctually, the past observation to forecast one period ahead . the equation is followingE t+1 = ( Xt + Xt-1 ++ Xt-N+1 ) / NWhere E t+1 = Next (t+1) forecast periodXt , Xt-1 = Actual valual at their various(prenominal) timesN = Number of observation included in averageExponential smoothing method is different the moving average method. We can see its treat all the past observation as the same degree of important. However, the forecaster would belive the ripened past result the lesser suitable to future trend. So that, the exponential smoothing method the smaller weighing factor for older past results in the fol lowingE t+1 = wXt + (1-w)Et Where w is the weight assigned to an actual observation at period t. fashioning forecast, the fore caster no need collecting previous result as many as moving average method needs. More importantly, the w value is determined.In summary, both these forecasting methods have several advantages and disadvantages. The advantage is the simplicity of method. So two methods should be used just for short term estimates. Question VIII A firm is making a long-run planning decision. It wants to decide on the optimal size of plant and labor force. It is considering building a medium-sized plant and hiring 100 workers. engineering estimates suggest that at those levels, the marginal product of capital will be 100 and the marginal product of labor will be 75. If the salary rate is $5 and the rental rate on capital is $10, is the firmmaking accountability decision? Support your aswer.We have MPL = 75, MPK = 100 with (L = labor variable scuttlebutt K = Capital varible input)To maximize its profit, the firm must use two inputs (labor and capital) to meet the denmand of marginal revenue of K and L input.Wage rate of labor w = $5Rental rate on capital r = $10Leading to MPL / w = 75/5 = 15 (1)MPK / r = 100/10 = 10 (2)From (1) (2), we can see that the firm is not making the right decision or they should hire more labor and reduce capital rental value.