Course Hero Logo

MGEC - Home work_1 (Study Group - H4)-PDF.pdf - ASSIGNMENT...

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 - 4 out of 13 pages.

ASSIGNMENT SUBMISSION FORMThis will be the first page of your assignmentCourse Name:Managerial Economics (MGEC)Assignment Title:Home work_1Submitted by:Study group H4Student NamePG IDAnshlla Rustagi62110818Ankita Poojari62110677Gaurav Sinha62110370Mohammad Rizwan62110402Sonaal Bhanot62110004ISB Honour CodeI will represent myself in a truthful manner.I will not fabricate or plagiarise any information with regard to the curriculum.I will not seek, receive or obtain an unfair advantage over other students.I will not be a party to any violation of the ISB Honour Code.I will personally uphold and abide, in theory and practice, the values, purpose and rules ofthe ISB Honour Code.I will report all violations of the ISB Honour Code by members of the ISB community.I will respect the rights and property of all in the ISB community.I will abide by all the rules and regulations that are prescribed by ISB.(Please start writing your assignment below)
Problem 1A computer products retailer purchases laser printers from a manufacturer at a price of Rs. 25,000per printer. During the year, the retailer will try to sell the printers at a price greater than Rs. 25,000,but may not be able to sell all the printers. At the end of the year, the manufacturer will buy backany unsold inventory at 40 percent of the original price. No one other than the manufacturer wouldbe willing 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 theopportunity cost 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 will beunsold 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 1a.Opportunity cost is defined as the net value of the best alternative that is foregone. Withinthe framework of this question, we can assume that the amount of money that has been usedto purchase laser printerswould have been invested elsewhere. Thus, we assume thatinterest income would have been earned (from investing in options such as governmentbonds, stocks etc). The value of theinitial investment (Rs. 25000 for a laser printer) and thesubsequent returnachieved on this would be the opportunity cost for a laser printer.b.The second-best alternative if the printer is not sold to the customer is that it will be boughtback by the manufacturer at 40% of the original cost (Rs 25,000) per laser printer. Thus, theopportunity cost per laser printer would be –40% of Rs. 25,000 =Rs. 10,000c.The conclusion drawn by the owner is incorrect as he is solely focussing on the sunk cost, theloss of Rs 10,000 per laser printer is based on the cost at which the owner purchased theprinter from the manufacturer i.e. Rs 25,000. The capital invested in the printer has occurredin the past (and is a sunk cost) and should not be considered while weighing subsequentdecisions.In the current scenario, the owner has two options:i.The question mentions that all the unsold stock at the end of the year would be boughtback by the manufacturer at 40% of the original cost which amounts to Rs10,000. Since itis mentioned that on December 1 a large portion of inventory is unsold, it is likely that theprinters at their current price (Rs30,000) would continue to be in the inventory and finallyat the end of the year be bought back by the manufacturer at Rs 10,000 in which case the
revenue would be Rs 10,000 per laser printer. His accounting loss per laser printer would

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 13 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