Please provide the answers to the following questions:

1. It is estimated that more than 2,000 students will apply for the MBA programs in Malaysia this

year. Using the concept of net present value (NPV) and opportunity cost, explain when it is

rational for an individual to pursue the MBA program.

(4 marks)

1. The general demand function for good A is

Qd = 600 - 4PA - 0.03M - 12PB + 15T + 6PE + 1.5N

where Qd = quantity demanded of good A each month, PA = price of good A, M = average

household income, PB = price of related good B, T = consumer taste index ranging in value from

0 to 10 (the highest rating), PE = price consumers expect to pay next month for good A, and N =

number of buyers in the market for good A.

a. Interpret the intercept parameter in the above demand function.

(2 marks)

b. What is the value of the slope parameter for the price of good A? Does it have the correct

algebraic sign? Why do you say so?

(2 marks)

c. Interpret the slope parameter for income. Is good A normal or inferior? Explain.

(3 marks)

d. Are goods A and B substitutes or complements? Explain.

(2 marks)

e. Are the algebraic signs on the slope parameters for T, PE and N correct? Explain.

(3 marks)

f. Calculate the quantity demanded of good A when PA = RM5, M = RM25,000, PB = RM40, T =

6.5, PE = RM5.25 and N = 2,000.

(2 marks)

1. What are appropriate measures of how sensitive the quantity demanded is to changes in

price, income, and prices of other goods? What affects those sensitivities?

(10 marks)

1. Aman Jaya Sdn Bhd has initially established soft drinks outlets in shopping malls. The firm

hires a business analyst to determine the demand for its soft drinks in shopping malls. After a

few months, the analyst tells the company that demand for the soft drinks in shopping malls is

given by the following equation:

Qd =5000-25Pa +30Pb +0.5I

where, Pa = Price per unit of AmanJaya Sdn Bhd soft drinks, Pb = Price per unit of the

competitor's soft drinks, and I = Income of the consumer.

AmanJaya also has an inclination to set up soft drink outlets in petrol stations. Later, the firm

sets up soft drink outlets in a petrol station. The petrol station was located at a place where

there were no other soft drink outlets within a radius of 5 km. In mid-2018, the firm offered a

discount of 10% and sales jumped from 700 bottles per month to 1,500 bottles per month.

The discount was withdrawn subsequently.

Happy by the response, six months later, the owner decided to permanently reduce the price

of soft drinks by 10%. Meanwhile, two new soft drink outlets were set up in the area. This

time to the owner's dismay, the sales went up marginally from 700 bottles per month to 800

bottles per month, and since a reduction in the price had already been announced, the owner

could not revert to the old price.

Questions:

a. Discuss whether the pricing strategy adopted by the company in the petrol station is right

or not.

(5 marks)

b. Calculate price elasticity of demand for soft drinks in petrol station outlets in mid-2018.

(2 marks)

c. What factors have changed since then and what is the effect of these changed factors on

the price elasticity, and the resultant new price elasticity?

(3 marks)

1. The Zenith television company faces a demand function for its products which can be

expressed as Q = 4000 - P + 0.5Y where Q is the number of televisions, P is the price per

television, and Y is average monthly income. Average monthly income is currently equal to

RM2,000.

a. Express the inverse demand curve faced by Zenith at the current income level.

(2 marks)

b. At what price and quantity is Zenith's total revenue (TR) maximum? State the maximum TR

value. Show the value of marginal revenue at this price and quantity.

(4 marks)

c. What is the price elasticity of demand for Zenith's demand function at the price and

quantity derived in (b)? Interpret.

(3 marks)

d. Why might Zenith choose to produce at a price and quantity different that that derived in

(b)?

(3 marks