TOPIC : ECONOMICS/MANAGERIAL ECONOMICS

CLEAR FORMATING

Q1. a) Discuss three main characteristics of Managerial Economics. (5 marks) b ) The demand function of coffee in terms of tea is given as Ge = 100+2.5P, where Oe is the quantity demanded of coffee in terms of 250 grams pack and P, is the price of tea per 250 grams pack. Compute the cross elasticity of demand when the price rises from shs.50 per 250 grams pack to shs.55 per 250 grams pack and comment on the nature of the two products. (5 marks) c) Discuss the merits and demerits of profit maximization hypothesis to firms. (5 marks) CS CamScanner d) "Price policies are those management guidelines that control the day-to-day pricing decisions as a means of meeting the objective of the firm". In view of this statement, explain the steps that should be adhered to when formulating pricing policies. (5 marks) c) ABC Lid. is looking to invest in some new machinery to replace its current malfunctioning one. The new machine will cost shs.420,000. It will increase the annual revenue by shs.200,000 and annual expenses by shs.50,000. The machine is estimated to have a useful life of 12 years. Using Accounting Rate of Return Method, advice the management on whether it should buy the new machine