UNIVERSITY OF MALAYA EXAMINATION FOR THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION ACADEMIC SESSION 2013/2014: SEMESTER 2 CFGB6101: ECONOMICS FOR MANAGERS JUNE 2014 TIME: 3 HOURS INSTRUCTIONS TO CANDIDATES: Candidates are required to answer ALL questions. This paper constitutes 100 marks. Calculator is permitted Diagram/illustration must be drawn clearly. Questions must be answered in English. {This question paper consists of 4 questions on 5 printed pages)CFGB6101 ANSWER ALL QUESTIONS. Question 1 Idris produces and distributes the scientific magazine, "the Echonomist.” The magazine demand, marginal revenue, total cost and average cost are as follow. P=55~2g and MR =55 ~4q TC=100-SQ+q? and MC= -5+2q a. Ifldris wants to maximize profits, calculate i. the equilibrium price and quantity, (2 marks) ii, total profit earned. (3 marks) il, the consumer surplus, producer surplus and total surplus. (3 marks) iv, the dead weight loss. (1 mark) b. If Idris wants to maximize total social surplus, calculate i. the equilibrium price and quantity (2 marks) ii, total profit earned (3 marks) i, the consumer surplus, producer surpius and total surplus (3 marks) c, Complete the following table (round each answer to the nearest whole number): Output | Total | Variable | Fixed [ Marginal] Average | Avg. | Avg. Fixed Cost) Cost | Cost) Cost | Cost | Var. Cost Cost oO 1 5 2 30, 3 3 4 | 405 10 5 70 6 50 - (4 marks) 4d. Define the terms marginal revenue and marginal cost. What action should a firm take if its marginal revenue exceeds its marginal cost? Explain (4 marks) (Total: 25 marks) 215CFGB6101 Question 2 “Malaysia has introduced a minimum wage for the first time in a move to support low income households and amid speculation that the government may call elections soon.” The BBC on 1 May 2012 In the light of the minimum wage policy that has been implemented in Malaysia, the market for semiskilled labor can be represented by the following supply and demand curves: Ly=120-10w and Ls =20w, Where L.= millions of person hours per year, and w= the wage in Ringgit per hour a. Calculate i. The equilibrium price and quantity that would exist under a free market (2 marks) ji, What impact does a minimum wage of RM 3.35 per hour have on the labor market? (2 marks) b. The government is contemplating an inciease in the minimum wage to RM 5 per hour. Calculate the impact of the new minimum wage of RM 5 on the quantity of labor supplied and demanded (2 marks) c. Draw @ graph showing the following: i. Labor demand, labor supply il. Equilibrium wage and the quantity of hours worked il, The minimum wage the labor demanded and supplied iv. The level of unemployment (6 marks) d. Based on part b,, calculate i, Workers’ surplus and producer's surplus before and after the proposed change. Show all the areas in a graph (4 marks) ii, Comment on the net effect of the proposed change upon workers as a whole and on individual workers. 3 marks) e. Is the policy efficient from an economist's viewpoint? (3 marks) 35CFGB6101 f, What are opportunity costs? How do explicit and implicit costs relate to opportunity costs? (@ marks) (Total: 25 marks) Question 3 a. in asimple economy, people consume only 2 goods—food and clothing. The market basket of goods used to compute the CPI has 50 units of food and 19 units of clothing. Food [Clothing] 2002 price | $4 ‘$10 2003 price [$6 $20 i. What are the percentage increases in the price of food and in the price of clothing? (2 marks) ii, Whats the percentage increase in the CPI? (2 marks) iii, Do these price changes affect all consumers to the same extent? Explain (2 marks) b. List the three major problems in using the CP! as a measure of the cost of living. (6 marks) ©, Compute how much each of the folowing items is worth in terms of today’s dollars using 177 as the price index for today. i. In 1926, the CPI was 17.7 and the price of a movie ticket was $0.25. li, In 1932, the CPI was 13.1 and a cook earned $15.00 a week, iii, In 1943, the CP! was 17.4 and a liter of petrol cost $0.19. (6 marks) d_ Distinguish between monetary policy instruments and goals. (4 marks) . Why does the GDP deflator give a different rate of inflation than does the CPI? (3 marks) (Total: 25 marks) 415CFGB6101 Question 4 (a), The table below uses data for the year 2003 provided by the Bureau of Labor Statistics, United States and are adjusted to be comparable to US data. All values are in thousands or percentages. Fill in the blank entries in the table, Show all workings. T Labor-Force Adult | Labor Unemployment | Participation Country | Population | Force | Employed | Unemployed | Rate Rate Japan | 109.474 62,510 [3,500 France 26.870 2577 37.41 Germany| 70,159 | 39,591 9.69 (4 marks) ii, List and define any two (2) of the costs of high inflation. (3 marks) (b) The Malaysian economy is in long-run equilibrium. Then one day the government appoints a new governor of Bank Negara Malaysia, This new governor is well-known for his view that inflation is not a major problem for an economy i. How would this news affect the price level that people would expect to prevail? (3 marks) ji, How would this change in the expected price level affect the nominal wage that workers and firms agree to in their new labor contract? (4 marks) iii, How would this change in the nominal wage affect the profitability of producing goods and services at any given price level? (3 marks) iv. How does this change in profitability affect the short run aggregate supply curve? (4 marks) v. If the aggregate demand is held constant, how does this shift in the aggregate supply curve (in part iv) affect the price level and the quantity of output produced. (4 marks) (Total: 25 marks) END 515