Determine the market equilibrium and the Coconuts

Determine the market equilibrium and the Coconuts S.A. profits.

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Module: Managerial Economics (MBA50)

Academic Year: 2016-17

1st Written Assignment (WA1)

Subject 1: Multiplant Monopolist (25%)

Coconuts S.A. is the only firm that has the right to process coconut milk in Coconut

Republic. The coconut milk processing takes place in two factories (A and B). In

factory A the cost function is


and in factory B it is



The inverse demand function is ( ) = 0.5 , where





is the price



and ( ) = 2


= 64 − 2





of processed milk in Coconut Republic.

1.Determine the market equilibrium and the Coconuts S.A. profits. (Mark 1.5)

2.How will Coconuts S.A. allocate total volume of coconut milk to its factories? Provide the economic intuition behind your finding. (Mark 1.0)

(Hint: do the calculations with one decimal point).

Subject 2: Monopoly and Sales of Goods in Packages (25%)

You are the manager of the only company organizing recreational cruises to a certain remote atoll in the Pacific. The company offers two services, namely a two-way trip by a luxury yacht to the atoll and accommodation at the hotel “The White Shark”. The company’s marginal and average cost of both the trip and the accommodation is 3,000 euros. As a manager you have the option to sell each service separately or to sell them as a package (i.e., sell both services in a single price). Depending on the firm’s policy, a customer may buy one service, buy two services (separately), or buy the package. Customers who buy only one service have always an alternative for the second. For example, a customer who will not use the firm’s luxury yacht for traveling may use her/his own yacht to go there or a customer who will not stay at the “White Shark” may camp under the stars. At the moment, there are three potential customers and their respective maximum willingness to pay for each service are provided in the following table (in euros):
















1.Suppose that you decided to sell each service separately. Determine the respective optimal prices and your firm’s profit. (Mark 1.0)

2.Suppose that you opted to sell them as a package. Determine the optimal price of the package and the company’s profit. (Mark 1.0)

3.Which of the two, i.e., sell separately or sell as a package, is the best strategy for your firm? (Mark 0.5)

(Hint: it may be the case that not all customers are served in the optimal solutions).

Subject 3: Market Equilibrium and Government Intervention (25%)





Suppose that the demand and supply functions for tobacco are given from:










and zero otherwise. Please





= −4 +

≥ 4





20 −0.5










Find the market equilibrium and determine the corresponding consumer and


producer surpluses. (Mark 0.5)



What would be the effect of a unit tax

€ imposed by the government on the

= 3

market equilibrium? What are the implications for the consumer and producer surpluses and the overall welfare? (Mark 1.0)

3.Assume now that the government imposes instead a production quota at the quantity level found in (2). Determine the overall welfare and its components under the new scheme. What do you observe?(Mark 1.0)

Subject 4: Demand Elasticities (25%)

A company is seriously concerned about the effect that the business cycle has on the quantity demanded for its product and has ordered a market survey based on a representative sample of consumers. From this survey the managers of the company sought to obtain answers to the following two questions put to the consumers:

What fraction of your total budget do you spend on our product?

If you had an additional income of €1,000 how much of it would you spend on our


The average value of the answers obtained from the survey was 10% for question 1 and €150 for question 2. Based on these survey answers, and using your understanding of the income elasticity of demand, could you infer what the value of income elasticity is for the product? Is this an inferior, a necessity or a luxury good?

(Mark 2.5)




Assignment guidelines

It is important that the coursework reflects your knowledge rather than it being simply an accumulation of information.

The assignment should be well structured and easy to read.

The assignment should clearly present all aspects and perspectives of the subject area, i.e.:

efficiently develop all necessary elements

refer to actual case studies or statistics if required opresent reasonable argumentation

omit irrelevant material

All questions are compulsory. The assignment should not exceed 2500 words or 10 pages long. Any necessary graphs, figures, tables, references and equations do count in the final length. Note also that although a violation up to 20% of the maximum length is acceptable, a penalty of 8% of your final grade applies beyond that threshold.

Each question accounts for a percentage of the total mark. This is clearly marked at the beginning of each question.

You are strongly advised to use the template for WAs provided by the Hellenic Open University.

The assignment is due on November 29, 2016. Please note that no assignment will be acceptable after this date as the electronic submission system automatically locks at 23:59 on the last day of submission.

You should submit your assignment via using your username and password.

You may use any of the following file formats:Rich Text Format (*.rtf).

Microsoft Word 97-2003 (*.doc).

Microsoft Word Open XML (*.docx)

Other document formats or read only file formats such as Portable Document Format (*.pdf) are not acceptable formats for the submission of your assignment.

Please pay attention to the proper naming of your assignment. The file should be

named as follows: Surname-Initial-WAnumber-YourClass. For example, if your name is Peter Drucker, you are sending in your 3rd assignment, and you are in ATH1 Class, then you should name your file as follows: Drucker-P-WA3- ATH1. Assignments that fail to comply with this requirement will receive a lower mark in the presentation grade.

Copying is considered cheating and is not acceptable in any form. Copying large parts or whole paragraphs of text found in any of the sources used for an assignment (printed books, academic articles, or electronic media of any kind) is totally unacceptable. It is considered plagiarism and leads to a severe penalty for the student(s) involved. Students should cite all sources from which they take data, ideas or words, whether quoted directly or paraphrased.

Good luck!!


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