Solve the attached questions
reached by default. In a sense, this is a statement of faith on which all Examination questions and answer notes 337 rational approaches to human affairs are based' (Amara and Lipins- ki). Discuss this statement, and assess the value of the analytical decision approach as an operational tool of management decision- making. 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 50p. 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 (a) Fixed costs are estimated at EX 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 Probability 0.05 0.25 0.10 0.60 0.15 0.15 (i) Find the number of loaves produced if the expected num- ber 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 f11 per day. Advise the manager on whether to engage the engineer or not, if the desired daily production is 1300. (d) Comment on the assumptions underlying your answers, and discuss the relevance of other decision criteria. 4. 'Profit is the maximum value a company can distribute during the year and still expect to be worth as much at the end of the year as it was at the beginning. ' Discuss this statement, and comment on its value in measuring profit for decision-making. 338 Managerial Economics 5. Cambrian Railways runs a daily container freight train between Cardiff and Birmingham. Its two major customers are British Steel and the Welsh Farming Cooperative. The demand for container by each customer is given by the equations: P. = 500-80, for British SteelExamination questions and answer notes 345 putational and data problems associated with each, referring to examples. For what decisions are cost functions necessary? Finally, note that 'it is better to be vaguely right than precisely wrong', Refer to Chapter 7. 6. Note that the quotation is reproduced in Chapter 10. Consider the methods available for determining the advertising budget, ranging from marginalism through the informational approach to the Dorf- man-Steiner model. Contrast these with the more pragmatic approaches encountered in practice. See Chapter 10. 7. Refer to Q9, 1985 and answer notes. Analyse the effects of an increase in interest rates via the allocation of funds model and the discounting approach. Explain the effects of inflation on the discount- ing approach, noting the consistency required. 8. (a) First derive the economic order quantity, and then illustrate the appropriate sensitivity results, if necessary reproducing the relevant diagram from Chapter 11. Outline the assumptions made, and consider their relevance. (b) Apply the model generated in part (a), and then (i) show that an order would simply be placed when stock falls to two weeks worth (since demand is uniform). Briefly outline the consequences if 'two weeks' is an uncertain parameter. (ii) compare the savings from the discount with the increase in inventory costs as a consequence of ordering beyond the E.O.Q. 9. ) Refers to the first year of the course, and should be avoided, although 10. Chapter 3 may provide a basis for answering Q.10. Economics 1987 1. A question about the basic philosophy of scientific decision-making, to be answered only as a last resort! If you must answer the question, do so analytically, by expounding a scientific framework for deci- sions, and then examining the circumstances in which that framework may (or may not) improve the decision process. See Chapters 1 and 4. 2. Explain the profit maximisation hypothesis, and briefly outline the price/output decision model with profit as the objective. List the theoretical arguments against this, including informational difficul ties, the weakening of competition and the divorce of ownership and control. Finally explain the empirical evidence: do firms maximise profits, either by accident (as if ) or by design? This question is not an opportunity to parade a summary of alternative models. 3. This question is a relatively simple application of the "Newsboy 346 Managerial Economics Problem', with one or two little twists. Part (a) is answered by using the formula: Fixed costs Breakeven= Price - Marginal cost To answer part (b), find the opportunity loss corresponding to each combination of act and event (production or demand equal to 1000, 1200, etc.). Then convert the frequency to a probability distribution, and find the action to minimise opportunity loss. The answer to part (c) requires the use of the failure rate probability distribution so that the expected number of saleable loaves is 1200 The expected failure rate is 0.095, so 1326 must be produced to give an expected 1200 saleable loaves (1326 x 0.905 = 1200).
