Economics of Enterprise Answers

The shareholder of Al-Karam wants to maximize his profits by selling his goods in the larger quantities. In order to achieve his target (s) he hired a manager to look after his business. However, the manager instead of maximizing business profits started maximizing his own interest by selling the designs in black to the competitor’s designers.

a.      Analyze the above situation and explain the possible problem that might occur for Al-Karam.

b.     If the wealth of the stockholder is decreasing ever since he hired the new manager, using EVA rule of thumb explain what would be the value of EVA and what is its economic interpretation. 

The shareholder of Al-Karam wants to maximize his profits by selling his goods in the larger quantities. In order to achieve his target (s) he hired a manager to look after his business. However, the manager instead of maximizing business profits started maximizing his own interest by selling the designs in black to the competitor’s designers.

a.      Analyze the above situation and explain the possible problem that might occur for Al-Karam.

If the wealth of the stockholder is decreasing ever since he hired the new manager, using EVA rule of thumb explain what would be the value of EVA and what is its economic interpretation

Grand Palace Hotel demand function for its guest room for the month of May 2021 is represented by the following equation.

Qd=700–2Pr +0.21TS+1.6I+0.05E Where,

Grand Palace Hotel and traveller’s expectation that a lower room price over the next six months:

TS = 20

I = 2.5

E = 100

1. Derive the demand equation for Grand Palace Hotel for the month of May 2021, based on the assumption of ‘ceteris paribus’.
2. Calculate the price for a room when the demand is 150
3. Defend whether the assumption that the principle of ‘ceteris paribus’

is a reasonable assumption.

Does Economists use different assumptions to answer only one question.

If there is an increase in the price of red meat, a substitute in production for milk, then:

the supply of milk will increase.

the demand for milk will decrease.

the supply of milk will decrease.

there will be a movement along the supply curve for milk.

none of the above will result.

Assuming that a firm produces 200,000 vehicles when the market price is set at $ 30,000 per unit in a perfectly competitive market. The total cost for producing the 200,000 vehicles is $5,000,000.

1. What is the firm’s total profit when it produces all the 200,000 vehicles?
2. What level of production (number of vehicles produced) will bring the profit to $0?
3. Should the firm stop producing when the total profit reaches $0? Explain based on the theory of ‘profit optimization’!
4. What happens to the firm’s profit level when its production is limited to 100,000 vehicles?
5. What should be the value of the optimizing Marginal Cost considering that the market price is set at $ 30,000?

Post a Discussion 

You have now read more about the balanced scorecard. It is important to consider and apply this to your place of work and to share your understanding with the rest of your course mates.

• Based on your understanding of the balance scorecard theory, study the example below and match the correct description to the balanced scorecard quadrant.

•  Justify your answer using the Balanced Scorecard theory

EXAMPLE:

A. Finance

B.Edducational Growth

C.Customer relationship

D.Internal process

match with

1. To satisfy our customers,at which process must we excel
2. If we succeed financially, how will we look financially
3. To achieve our vision, how much organizations learn and grow
4. To achieve our vision, how should we look to our customers

What is the definition of economics

The utility function of Jim is given by  u(w, b, e) = w + b – c (e)

c(e) = 1 if e < 10

c(e) = (1/2 × (e − 10)^2) if e ≥ 10. 2 

Michael is Jim’s boss, who is maximising DM’s profits which are given by: 

  π (w, b, e) = R(e) − w − b, where R(e) is the firm′s sales revenues and R(e) = 100e 

Michael cannot observe Jim’s effort (e) directly but observes R(e) and can set the bonus level dependent on sales revenues.

(a). If Michael sets w=100 and b=0, what would be Jim’s effort level (e) and DM’s profits?

Gap between demand and supply