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# ECO404 Assignment No 01 Solution & Discussion Spring 2013

Assignment 01
Eco404 (Managerial Economics)
Marks: 20
Objectives of the study:
The objectives of this assignment are to familiarize students with the:
 Types of costs like explicit and implicit costs
 Types of profits like business and economic profit
 Regression function and its components
 Elasticity calculation methods
The Case:
Pak Elektron Limited (PEL) as the pioneer manufacturer of electrical goods in Pakistan
was established in 1956 in technical collaboration with M/s AEG of Germany. Later on,
it was taken over by Saigol Group of Companies in October 1978. Since its inception, the
company has always been contributing towards the advancement and development of the
engineering sector in Pakistan by introducing a range of quality electrical equipments and
home appliances. Appliances division of PEL consists of appliances manufacturing like
Air Conditioners, Refrigerators, Deep Freezers etc. Power division of PEL is one of the
major electrical equipment suppliers to Water and Power Development Authority
(WAPDA) and Karachi Electrical Supply Corporation (KESC), which are the largest
power utilities in Pakistan. A hypothetical study was conducted on PEL in year 2012
which revealed that annually, on average, the company receives Rs.59,35,680 from
selling its products while spends, Rs.12,55,000 in wages of its employees and on
producing hundreds of engineers, skilled workers and technicians through its
apprenticeship schemes and training programmes, Rs.6,45,000 in payments of rented
buildings, and Rs.5,62,000 in interest payments on bank loans taken for production
process. The study also found the fact that if PEL’s manager would work for some other
renowned, emerging local and multinational electronics company, he could earn at most
Rs.22,18,000 per year.
Requirement:
Part A
Read the case very carefully and from the given information, calculate the following for
PEL Company:
a) Total explicit cost
b) Total implicit cost
d) Economic profit
Part B
In that hypothetical study, the following regression function was estimated for PEL
Refrigerators:
QR = 690 - 0.2PR + 0.7N + 0.4Y + 0.8PW
Where,
QR = Sales of PEL Refrigerators
PR = Price of PEL Refrigerators
N = Number of consumers in the market
Y = Consumers’ income
PW = Price of Waves Refrigerators (a substitute product)
Suppose in year 2012, PR = Rs.53,000, N = 250, Y = Rs.45,000, PW = Rs.51,000 then
calculate:
a) Total sales of PEL Refrigerators
b) Price elasticity of demand for PEL Refrigerators
c) Income elasticity of demand for PEL Refrigerators
d) Cross price elasticity of demand for PEL Refrigerators with respect to Waves
Refrigerators
Outcomes of the study:
After solving this assignment, student will be able to:
 Distinguish between explicit and implicit costs and how to calculate these costs
 Distinguish between business and economic profits and how to calculate these
profits
 Know what the regression function is and how to estimate different types of
elasticities from the given regression function
Marking Scheme: (Part A: 2+2+2+2), (Part B: 3+3+3+3)
IMPORTANT NOTE:
24 hours extra / grace period after the due date is usually available to overcome
uploading difficulties. This extra time should only be used to meet the emergencies and
above mentioned due dates should always be treated as final to avoid any inconvenience.
IMPORTANT INSTRUCTIONS:
 Make sure to upload the solution file before the due date on VULMS.
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FORMATTING GUIDELINES:
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REFERENCING GUIDELINES:
 Use APA style for referencing and citation. For guidance search “APA reference
understanding or visit
http://linguistics.byu.edu/faculty/henrichsenl/apa/APA01.html
RULES FOR MARKING:
 It is submitted after the due date.
 The file you uploaded does not open or is corrupt.
 It is in any format other than MS-Word or Open Office; e.g. Excel, PowerPoint,
PDF etc.
 It is cheated or copied from other students, internet, books, journals etc.
Best of Luck

Tags: 2012, 35, 45, 55, 62, 680, A, AEG, Air, Appliances, More…

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### Replies to This Discussion

looks like only few student r taking this course

I am trying to solve it agar mujh sy sy hota hy tu I will share it with u all

Aslamualakum
This is khalid Usman (MBA) ECO 404 (Lahore)
60% Assigment is completed by my personal efforrts as i have copared with the above information but the last three points of the 2nd question are still peding because i dont the way of calculation ,somebody help me plz ,just to discss i dont need the answers,
0301-8438962

unfortu there is no one to discuss in my campus i am the only student in my campus eco 404

waiting

Shazade 6 baja milta hun. Main na bi aana hai campus aaj...

athar bhai .. pls share complete idea solution ....

For all students of ECO404. For 2nd part of assignment. pl go to page 32 of ECO404 handout last paragraph. formula to calculate this part with examples are there

bhai thori hint hi bata do agar 2nd part kar lia hai too

Dear Students Share your views and problems about this Assignment here, So we can discuss and solve this Assignment, Don't wait for solutions , Start discussion because Discussion clear our concepts & provide best solutions. As Date sheet has come and Midterm exams will start on 25 May. So Please Focus on Lectures and Participate in Lecture Wise Discussions and Assignments , GDB, Quiz Discussions and Clear ur concepts Thanks  and Regards.

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