Economics-QA115 online

Economics-QA115 Online Services

PART 1

Purpose
The purpose of PART 1 of this assignment is to enable the students to learn how to estimate a demand function, to analyse the demand function and to use the results for making decisions.

Requirement
Early in 1993, the Southeastern Transportation Authority (STA – similar to LRT or Commuter Train in Malaysia), a public agency responsible for serving the commuter rail transportation needs of a large Eastern city, was faced with rising operating deficits on its system. Also, because of a fiscal austerityp gram at both the federal and state levels, the hope of receiving additional subsidy support was slim.

The board of directors of STA asked the system manager to explore alternatives to alleviate the financial plight of the system. The first suggestion made by the manager was to institute a major cutback in service. This cutback would result in no service after 7:00 P.M., no service on weekends, and a reduced schedule of service during the midday period Monday through Friday. The board of STA indicated that this alternative was not likely to be politically acceptable and could only be considered as a last resort.

The board suggested that because it had been over five years since the last basic fare increase, a fare increase from the current level of $1 to a new level of $1.50 should be considered. Accordingly, the board ordered the manager to conduct a study of the likely impact of this proposed fare hike. The system manager has collected data on important variables thought to have a significant impact on the demand for rides (RIDES) on STA. These data have been collected over the last 24 years and include the following variables:

a. Price per ride (in cents). This variable is designated PRICE in Table 1. Price is expected to
have a negative impact on the demand for rides on the system.

b. Population in the metropolitan area serviced by STA. It is expected that this variable has a
positive impact on the demand for rides on the system. This variable is designated POP in
Table 1.

c. Disposable per capita income. This variable was initially thought to have a positive impact on the demand for rides on STA. This variable is designated INCOME in Table 1.

d. Parking rate per hour in the downtown area (in cents). This variable is expected to have a
positive impact on demand for rides on the STA. It is designated H in Table 1.

The transit manager has decided to perform a multiple regression on the data to determine the
impact of the rate increase.

Questions

i) What is the dependent variable in this demand study?
ii) What are the independent variables?

iii) What are the expected signs of the variables thought to affect transit ridership on STA?
iv) Using a multiple regression program available on a computer to which you have access,estimate the coefficients of the linear demand model for the data given in Table 1.
v) What is the value of the coefficient of determination? How would you interpret this result?

vi)Which of the independent variables (if any) appear to be statistically significant (at the 0.05 level)?
vii) Provide an economic interpretation for each of the coefficients in the regression equation you have computed.
viii) Calculate the price elasticity using 1992 data.

ix) Calculate the income elasticity using 1992 data.
x) If the fare is increased to $1.50, what is the expected impact on weekly revenues to the transit system if all other variables remain at their 1992 levels?

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PART 2

Purpose

The purpose of this assignment question is to enhance the skill of the students to estimate a cost function and to apply its use in any relevant industry.
a) Plot the data on a graph, and draw a freehand curve that best fits the data.
b) Fit three possible statistical cost functions to the data. Use straight-line, quadratic, and cubic formulas. Do the results confirm the curve you drew in a?

c) Discuss the statistical results you obtained in b. Include in your discussion R2, the
coefficients, and the statistical significance of the coefficients.
d) If the data represent 10 months of production for one plant of a specific company, would
you consider this to be a short-run analysis?
e) How would your answer to part d change if you were told that the data represent 10
different plants during a particular month of the year?

PART 3

Purpose
The purpose of this assignment question is to enable the students to evaluate levels of
competitiveness in various market structures and to introduce the correct strategies in order to
obtain competitive edge in a selected market.

Requirement

The following is the list of well known companies and the products that they sell. Which of the four types of market (perfect competition, monopoly, monopolistic competition, and oligopoly) best characterizes the markets in which they compete? Support your answer as thoroughly as possible.
How would you suggest they gain greater competitive advantage?

a) McDonald’s-hamburgers
b) Petronas-petrol
c) Dell-personal computers
d) Heinz-ketchup
e) Pampers-disposable diapers
f) Kodak-photographic film
g) Starbucks-gourmet coffee
h) Domino’s-pizza
i) Intel-computer chip for the PC
j) Nasilemak

PART 4

Purpose

The purpose of this assignment question is to ensure that the students know how to analyse the
impact of price discrimination in the market place.

The marginal operating cost of each unit of quantity is RM5. (Hint: Since marginal cost is a constant, so is average variable cost. Ignore fixed cost.) The owner of the amusement park wishes to maximize profit.

a) Calculate the price, quantity, and profit if
(1) The amusement park charges a different price in each market.
(2) The amusement park charges the same price in both markets.
(3) Explain the difference in the profit realized under the two situations.

b) (Mathematical solution) The demand schedules can be expressed in equation form as follows (where subscript A refers to the adult market, subscript C to the market for children,and subscript T to the two markets combined)

QA=20- 1PA
QC = 30 – 2Pc
QT = 50 – 3PT

Solve these equations for the maximum profit that the amusement park will attain when it
charges different prices in the two markets and when it charges a single price for the
combined market.

Product code: Economics-QA115

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