Show your workings and mark the answers and details in bold.

1. 'The most we can say about the Demand Curve is that it slopes down unless it slopes up.' Discuss.

2. Explain the determination of the optimal price and output combination in a situation of monopolistic competition. Use the resulting equilibrium to illustrate the statement that 'production inefficiency is a necessary price to pay for product variety'. Comment on this statement.

3. Assess the contribution of business games to the study of decisionmaking processes, illustrating your answer by reference to one business game with which you are familiar.

4. 'Given that the future is unknown, the best we can do is to estimate the likelihood of future events and then use expected profit as the decision criterion.' Discuss.

5. The senior partner in a local accountancy firm is concerned about the error rate amongst assessments issued by her office. A careful check over the past few years enables her to estimate that the error rate has the following probability distribution: Error rate Probability 0.05 0.25 0.10 0.35 0.15 0.25 0.20 0.15 Each error costs 40 because of the labour time involved in reassessment. Her firm is just entering the assessment 'season', and is expected to perform 500 assessments over the next few months. One way to reduce the error rate is to send all staff to a one-day training course at the local university- 'Precision in Assessment' . The university claims this would ensure an error rate of 0.05, but she considers that an error rate of 0.10 would be equally likely. The course fee is 700 for all her staff, whilst lost profit from one day's work missed would be 500. Advise her on whether to send staff on the course or not. A careful check of that day's output shows that in ten assessments, two contained errors. Use this information to update the error rate probability distribution and hence determine whether your advice needs amendment.

6. 'The fitting of mathematical trend curves is by far the easiest and cheapest method of forecasting long-run changes in product demand, and is likely to be just as reliable as any alternative method. ' Discuss.

7. An engineering firm has applied for patents on two new products and has just learned that only one application has been successful. Compare and contrast the optimal pricing and promotional strategies for each of these new products.

8. Critically examine the view that advertising can be . seen as provision of information valuable to the consumer, for which the consumer will be prepared to pay extra.

9. (a) Briefly analyse the effect of an increase in interest rates on the investment portfolio of a profit maximising holding company. (b) The University is contemplating building a new squash court, adjacent to its new hall of residence. To secure local support for its planning application, the University has offered to open the court to local players at student rates for the first five years. After five years, the University can charge what it likes for the courts. Consequently, the University estimates that net revenue from the court will be 1000 for each of the first five years, rising by 10% (compounded) in each of the sixth to tenth years. In the eleventh and twelfth years rising maintenance costs will completely offset rising fees so that net revenue stays at tenth year level. At the end of the twelfth year, the site is due for redevelopment. The cost of building the squash court is estimated to be 6000. To finance the court, the University must draw from its reserves, currently earning 12% in Local Authority Bonds. Selling sufficient bonds would involve legal and administrative costs of 320. Advise the University on the viability of the project. What other factors should the University take into account?

10. A firm has an annual demand of S units for a good whose purchase cost is c per unit. Each order costs a to place, and the cost of holding stock is b% of the average value of stock per annum. Determine the optimal order quantity. A local firm uses 2000 units of a particular component each year. The component has a purchase price of 4/unit, while the cost of holding stock is estimated at 20% of the average stock value. If the cost of placing each order is 12.50, find the optimal number of orders placed each year. Suppose the component supplier offers a discount of 2% on the purchase price if orders are placed in units of 1000. Is the discount worth accepting? Suppose that instead of a single figure you had been given a probability distribution for the number of units used each year. Indicate the effect on stock policy.