Show the workings and explanations to justify the answers.

1. 'Statistically we expect that good decisions will lead to favourable outcomes more often than will either poor decisions, or decisions reached by default. In a sense, this is a statement of faith on which all rational approaches to human affairs are based' (Amara and Lipinski). Discuss this statement, and assess the value of the analytical decision approach as an operational tool of management decisionmaking.

2. Critically examine the theoretical and empirical validity of the profit maximisation hypothesis

3. The Hot-Bake shop sells only bread made that day. Each loaf produced has a variable cost of 30p and sells for SOp. Any bread unsold at the end of each day is thrown away. At the start of each day, the manager must decide how many loaves to produce. The table below records sales over the past month: Daily sales Frequency 1000 6 1200 10 1400 10 1600 4

(a) Fixed costs are estimated at X per day. Find the breakeven number of loaves produced and sold, and the number if expected daily profit was 50.

(b) Find the number of loaves produced to minimise expected opportunity loss.

(c) Bread is produced by a fully automated machine which mixes the dough, divides it into 1 lb units, fills each baking tin and passes them through an oven. Out of each batch, some are rejected for being underweight or burnt. The proportion rejected has the probability distribution given below: Proportion rejected 0.05 0.10 0.15 Probability 0.25 0.60 0.15 (i) Find the number of loaves produced if the expected number of saleable loaves equals your answer to question (b). (ii) The services of a maintenance engineer would set the rejection rate equal to 0.05, but would cost 11 per day. Advise the manager on whether to engage the engineer or not, if the desired daily production is 1300.

5. Cambrian Railways runs a daily container freight train between Cardiff and Birmingham. Its two major customers are British Steel and the Welsh Farming Co-operative. The demand for containers by each customer is given by the equations: P 1 = 500- 8Q1 for British Steel P2 = 400-5Q2 for Welsh farming. P; is the price charged by Cambrian per container, and Q; is the number of containers used by each customer. Cambrian's total cost function is given by the equation: TC = 10 000+20Q where Q is the number of containers per trip. (a) What are the necessary conditions for profitable price discrimination by Cambrian? (b) What profit -maximising rule will Cambrian use if setting prices as a discriminator? Determine the profit-maximising quantity of freight service Cambrian will supply, show how this will be divided between steel and agriculture and find the prices charged in each market. Calculate Cambrian's total profit. (c) Assume that Cambrian is prevented by law from price discrimination. Determine Cambrian's price and output combination to maximise profit, and hence estimate the opportunity cost to Cambrian of the Anti-Price Discrimination law.

6. Define an optimal inventory policy, and assess the impact on that

optimal inventory policy of:

(i) uncertain demand

(ii) uncertain lead times

(iii) customer reactions to product shortages

(iv) an oligopolistic product market.

7. (a) Compare and contrast the explanatory and extrapolatory approaches to demand estimation. Illustrate your answer with reference to the problem of estimating demand for a new luxury food processor. (b) The Welsh Kitchen Design Company sells its deluxe food processor for 150/unit. Company experience suggests that both price and consumer incomes affect sales, with an estimated price elasticity of demand of -3.0, whilst income elasticity is estimated at 4.0. In 1986 the company sold one million units, whilst total consumer disposable income was 600 billion. Estimated consumer disposable income for 1987 is 650 billion. (i) Assuming price remains the same in 1987, estimate total sales revenue. Examination questions and answer notes 339 (ii) If 1988 consumer income is expected to remain constant at 650 billion, whilst price is expected to fall by 25, estimate sales revenue in 1988. (iii) Estimate sales revenue in 1988 if consumer income rises by 10% between 1987/88, whilst price falls by 15%. (iv) Use the information above to estimate demand as a linear function of price and income.

8. 'Despite the theoretical advantages of the discounting procedure, capital investment was either justified in terms of some "need to have" case presented by lower management or on the basis of some elementary payback period calculations." Discuss this conclusion from an empirical survey of investment decision-making.

9. Explain the inability of economic theory to find satisfactory solutions to the theoretical problem of price and output decision-making in oligopolistic markets.

10. 'Advertising in the modern economy has entered the state of persuasion as distinct from proclamation or iteration' (Turner). Discuss this view of advertising in relation to its role in the modern firm, and explain the determination of an optimal advertising budget.

11. Analyse the effects of an increase in both wage rates and labour productivity on the costs of the firm