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Exercise 2: Assume that companies A and B trade in product X on the market. If A and B advertise the product X, then A and Bs profit will be 12 billion VND. If A advertises, in which B does not advertise, the profits of A and B will be 15 billion VND and 4 billion VND respectively. If B advertises, in which A does not advertise, the profit of B and A will be 18 billion VND and 5 billion VND respectively. If both A and B together do not advertise, the profits of A and B will be 17 billion VND and 6 billion VND respectively. Please follow these requirements:
TRAINING PROGRAM GLOBAL ADVANCED MASTER OF BUSINESS ADMINISTRATION MANAGERIAL ECONOMICS Lecturer : PhD. Tran Ngoc Thu Full name : NGUYEN DO THANH HCM city – Feb/2012 INDIVIDUAL ASSIGNMENT SUBJECT: MANAGERIAL ECONOMICS Exercise 1: Suppose that the estimating regression results of the demand function for Sony digital camera as follows Requirements: 1/ Please construct the demand function of this product, the first independent variable is the price of Sony digital camera, the second one is the population's income, and the third one is the Canon digital camera’s price. 2/ Is the estimating regression reliable? Why? 3/ What information does the estimating results provide for SONY camera company? Solution: 1. The demand functions of Sony digital camera: y = β0 + β1x1 + β2x2 + β3x3 In which: - y is the variable of the demand function of Sony digital camera; - x1 is the variable of the price of Sony digital camera; - x2 is the second independent variable of the population’s income; - x3 is the third independent variable of the price of Canon digital camera; * The regression model in this case includes: y = 786.8849 – 1.20651x1 + 0.292605x2 + 0.00501x3 2. Is the estimating regression reliable? Suppose the reliable indicator α = 0.05, we have: β0 = 786.8849 with p-value = 1.66*10-7 < 0.05: reliable indicator; β1 = – 1.206519 with p-value = 4.52*10-9 < 0.05: reliable indicator; β2 = 0.292605 with p-value = 2.88*10-6 < 0.05: reliable indicator; β0 = 0.00501 with p-value = 0.003259 < 0.05: reliable indicator; Conclusion: The said estimating regression reliable 3. The said estimating results provide information for Sony digital camera company as follows: From the regression model: y = 786.8849 – 1.20651x1 + 0.292605x2 + 0.00501x3, we have β1 = - 1.20651: When population's income and the price of Canon products are constant, the increase of the price of Sony digital product has driven the demand for this product to reduce 1.20651; β2 = 0.292605 If the prices of Sony and Canon products are constant, the increase of the population’s income will drive the demand for this product to increase 0.292605; Β3 = 0.0050: When population’s income is constant and the price of Sony product is constant, the increase of the price of Canon products will increase the demand for the product Sony at 0.00501; After considering these three coefficients, we can see that the price of each product is strongly influenced by consumer demands. Income is also an important factor affecting people's needs. However, the price of Canon product does not affect consumption for Sony digital product of the people. EXERCISE 2: ASSUME THAT COMPANIES A and B TRADE IN PRODUCT X ON THE MARKET. IF A AND B ADVERTISE THE PRODUCT X, then A AND B's PROFIT WILL BE 12 BILLION VND. IF A ADVERTISES, IN WHICH B DOES NOT ADVERTISE, THE PROFITS OF A AND B will be 15 BILLION VND AND BILLION VND RESPECTIVELY. IF B ADVERTISES, IN WHICH A DOES NOT ADVERTISE, THE PROFIT OF B AND A WILL BE 18 BILLION VND AND BILLION VND RESPECTIVELY. IF BOTH A AND B TOGETHER DO NOT ADVERTISE, THE PROFITS OF A AND B WILL BE 17 BILLION VND AND BILLION VND RESPECTIVELY. Please follow these requirements: 1. Construct the matrix to reflect profits of A and B in the above cases 2. Which reasonable strategies will A & B be? 3. If A does not advertise, which reasonable strategy will B be? In contrast, if B does not advertise, which reasonable strategies will A be? 4. Which companies have dominant strategies? 5. Should both companies co-operate? And should they be partnership in long term? Why? Solution: 1. Construct the matrix to reflect profits of A and B: Company A Advertising 12 billion Advertising Company B No advertising No advertising 12 billion tỷ 18 billion 15 billion billion 17 billion billion 2. Which reasonable strategies will A & B be? Reasonable strategies of A and B shall be a dominant strategy for companies A and B, A and B will choose to advertise, regardless of how competitors react. We call the output of the game is balanced with the dominant strategy. 3. If A does not advertise, which reasonable strategy will B be? In contrast, if B does not advertise, which reasonable strategies will A be? - If A does not advertise, the reasonable strategy of B will be advertising, because the profits of B will increase from billion (not advertising) to 18 billion (if B advertises). - In contrast, If B does not advertise, the reasonable strategy of A will not be advertising, because the profits of B will increase from billion (not advertising) to 18 billion (if A does not advertises) 4. Which companies have dominant strategies? Through analysis of the dominant strategy of A and B in question 3, the reasonable strategy of A will not be advertising; the reasonable strategy of B will be advertising. Thus - Company A does not have the dominant strategy. - Strategy of company is more dominant than A: Advertising 5. Should both companies co-operate? And should they be partnership in long term? Why? Both companies trade in a product X, for mutual benefit, they should work together. Because the sales of A and B at the time of advertising and noneadvertising, we can see that market dominance of A is greater than B, in contrast, A is more dominant on advertising. To harmonize advantages, they should work together. However, the current or non-current cooperation is still subject to their reasonable strategies at that time Exercise 3: A wooden furniture manufacturing company is looking for any place to build a plant. This is an industry requiring wood-skillful employees. He is considering among Binh Chanh district (Ho Chi Minh city), Thu Dau Mot town (Binh Duong province) and Long Thanh district (Dong Nai province). Accordingly, operating conditions and environment of three locations are similar. After a marketing research, he has collected the following data: Binh Chanh district Thu Dau Mot town Long Thanh district Salary for skillful employee (million VND) 2,2 1,6 1,8 Marginal productivity of labor (products/day) 15 12 13 Please give him your advice according to the economic management’s knowledge Solutions: It is supposed that working days include 26 days/month; - At Binh Chanh district: Marginal productivity 15 products /day and wage will be 2.2 million VND /month. Thus, labor cost shall be 5.641vnd/product; - At Thu Dau Mot town: Marginal productivity 12 products /day and wage will be 1.6 million VND/ month. Thus, labor cost shall be 5.128 VND /product; - At Long Thanh district: Marginal productivity 13 products /day and wage will be 1.8 million VND/month. Thus, labor cost shall be 5.325 VND/product With the said analysis, labor wage at Thu Dau Mot town is lowest (5.128 vnd/product) compared to other locations. Besides the labor costs, the administrator should consider other expenses such as raw material costs, overall production costs, transportation costs, site costs . to select to locate the plant. /.