Course Hero Logo

Managerial Economics - HW1.pdf - Managerial Economics...

Course Hero uses AI to attempt to automatically extract content from documents to surface to you and others so you can study better, e.g., in search results, to enrich docs, and more. This preview shows page 1 - 3 out of 12 pages.

Managerial EconomicsIndian School of BusinessDHM 1, 2021-22HOMEWORK 1Due: Saturday, June 26 at 1 pmTeam : Group B6oBhanuja LakshmioDeepak DevrajoVarshita MangamoorioVedant GuptaoYash Ajith Nair
Please write the names of ALL group members, their ID numbers, group name and section clearly onyour answer script.You must adhere to the honor code while doing this assignment.This is a CODE 2N-b assignment.Show all intermediate steps (for full and partial grades).Problem 1A computer products retailer purchases laser printers from a manufacturer at a price of Rs. 25,000 perprinter. During the year, the retailer will try to sell the printers at a price greater than Rs. 25,000, butmay not be able to sell all the printers. At the end of the year, the manufacturer will buy back anyunsold inventory at 40 percent of the original price. No one other than the manufacturer would bewilling to buy these unsold printers at the end of the year.a.At the beginning of the year, before the retailer has purchased any printers, what is the opportunitycost of a laser printer?b.After the retailer has purchased the laser printers, what is the opportunity cost associated withselling a laser printer to a customer? (Assume that if this customer does not buy the printer, it willbe unsold at the end of the year.)c.Suppose that on December 1, the retailer still has a large inventory of unsold printers. The retailerhas set a retail price of Rs. 30,000 per printer. The manager of the store proposes that they shouldcut the price by half and sell the printers at Rs. 15,000 each. The owner of the store disagrees,pointing out that at Rs. 15,000 each, they would lose Rs. 10,000 on each printer sold. Is the owner’sargument correct?Solution:a.At the beginning of the year, before the retailer has purchased any printers, what is theopportunity cost of a laser printer?Opportunity cost of pursuing any decision value forgone for not choosing the next best course ofalternative. Accordingly, in the instant case the opportunity cost of the printer will be as follows:In the hands of ManufacturerIn order to determine the total opportunity costs, it is essential to determine all the componentsof opportunity cost individually. The opportunity costs for the Manufacturer would typicallyinclude the following:oProduction costof manufacturing a printer; andoExpected returnthe Manufacturer would have earned had the production cost not beenincurred ie typical Return of Investment of the Manufacturer (this may be any of the Cost ofCapital for business, Risk free rate of return in the market, Average rate of return on alternativeinvestment options in the hands of manufacturer)For the purposes of this answer, it has been assumed that the manufacturing costs of the printer inthe hands of manufacturer would be less than Rs. 25,000/- ie the sales price provided in thequestion. Also, in absence of precise facts, the opportunity cost has not been quantified above.

Upload your study docs or become a

Course Hero member to access this document

Upload your study docs or become a

Course Hero member to access this document

End of preview. Want to read all 12 pages?

Upload your study docs or become a

Course Hero member to access this document

Term
Fall
Professor
N/A

Newly uploaded documents

Show More

Newly uploaded documents

Show More

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture