LUNAR INTERNATIONAL COLLEGE

DEPARTMENT OF MASTERS OF BUSINESS ADMINISTRATION

MANAGERIAL ECONOMICS
INDIVIDUAL ASSIGNMENT II

Prepared by: Mihret Tsegaye (MBA section 4)(GRS/022713)

Submitted to:Alemu L. (PhD)

August 20,2021
Individual Assignment2
1. Suppose you estimated the demand function for the above Vodafone firm using a
sample taken from residents in Addis Ababa as follows:
are the level of quantity
demanded, price of Vodafone voice call fee, the income of the Vodafone telecom
potential customers, and price of Ethiotelecom voice call fee, respectively. Also,
assume that all variables are measure in natural logarithm.
A. Identify and interpret the price, income and cross-price elasticity of demand.
B. What will be your recommendation for the general manager of the Vodafone firm
considering the price elasticity of demand and why?
C. Are the Vodafone voice services substitute or complements to the ethiotelecom
voice services taking into account the above-estimated demand function, not taking
into account what you know or what you expect. What is the message or implication
of such relationship to the general manager?
Solution:-
A. Identify and interpret the price, income and cross-price elasticity of demand.
Price elasticity of demand
E = % ∆Q/%∆P = ∆Q/∆P . P/Q
Income elasticity of demand
EY = % ∆Q/%∆Y = ∆Q/∆Y . Y/Q
Cross - price elasticity of demand
Exy = % ∆Qx/%∆Px = -∆Qx/∆Px . Py/Qx
Epx = ∆Qd/∆Px = -1.25|E|
∆Qd/∆Y = 5.25 it is elastic because it is greater than 1
∆Qd/∆Pr = -3.25 it is elastic because it isgreater than1 |E|

B. What will be your recommendation for the general manager of the Vodafone firm
considering the price elasticity of demand and why?
Epx = ∆Qd/∆Px = -1.25 it is elastic the negative sign show when the price increases
the quantity demand decrease so TR increases when Q decreases(P decreases) so in
my suggestion the vodafone company should not increase its price because as we see
when the price increases the quality demand decreases.
C. Are the Vodafone voice services substitute or complements to the ethiotelecom
voice services taking into account the above-estimated demand function, not taking
into account what you know or what you expect. What is the message or implication
of such relationship to the general manager?

When we see the sign is it is positive that means the demand has an inversely related
with the price.so when the price of a Vodafone company goes up, the demand goes
down and reduces the quantity of demand for ethio-telecom.