SUBMISSION OF

ASSIGNMENT
(INDIVIDUAL)

LECTURER PROF. DATUK DR. MAD NASIR SHAMSUDIN

SUBJECT
ECO7101 BUSINESS ECONOMICS

PROGRAM MARSETRS IN BUSINESS ADMINISTRATION FIRST

TRIMESTER

TITLE Individual Assignment

STUDENT NAME YESMIN FARJANA

PBS23201075

DATE 27/03/2024

SUBMITTED

MARKS
Question 8: Suppose that in a city there are 100 identical self-service gasoline stations

selling the same types of gasoline. The total daily market demand function for gasoline

in the market is QD = 60,000 – 25,000P, where P is expressed in RM per gallon. The

daily market supply is QS = 25,000P for P > RM0.60.

a. Determine the equilibrium price and quantity of gasoline in the market. If

a firm average variable cost function is AVC = 0.002Q, what is the optimum level of

output that will maximize the profit of the firm? Illustrate the answer graphically.

b. Suppose that now the market is monopolized (for example, a cartel is formed

that determines the price and output as a monopolist would, and allocates

production equally to each member), and the monopolist total cost function is TC =

50,000 + 0.00001Q2, what is the optimum level of output and price of the

monopolist? Illustrate the answer graphically.

Answer:

a.

QD = QS

60,000 – 25,000P = 25,000P

P = 1.2

QD = 60,000 – 25,000 (1.2)

= 60,000 – 30,000

= 30,000 gallon

AVC = 0.002Q

AVC = 0.002 (30,000)

AVC = RM 60

30,000 / 100 = 300

AVC = VC x Q

VC = 0.002Q x Q

2
VC = 0.002𝑄

TVC = AVC x Q

2
0.002Q(Q) = 0.002𝑄
MC = 2 (0.002) Q

MC = 0.004 Q

0.004Q = 1.2

Q = 300

B.

P = (60,000/Q) + 25,000

P = 1.44

TR = P x Q

2
TR = 2.4Q – 0.00004𝑄

MR = 2.4 – 0.00008

2
TC = 50,000 + 0.00001𝑄

MC = MR

MC = 0.00002Q

Q = 24,000

2
TR = 2.4Q – 0.00004𝑄

MR = 2.4 – 0.00008Q
Question 9: Sri Jangung Sdn. Bhd. is an agro-based company producing maize for

human and feedstuff. The company decided to conduct a series of experiments to

determine the amount of maize output that could be produced with different level of

fertilizer (K). Mr. Ahmad, the production manager of the company is assigned to work

closely with the consultants to determine the optimal level of fertilizer (K) that will

maximize the profit of the company, given that the maize can be sold at RM2.00 per kg.

and the price of consumption the fertilizer is at RM6.00 per kg.

Relationship between Inputs

and Output of Maize Production.

K (kg.) Output (kg.)

1 5

2 20

3 30

4 35

5 38.5
 6 37

7 36

8 20

Determine the optimal use fertiliser (K) based on the estimated production function

(shown below).

Dependent Variable: Q

Method: Least Squares

Sample: 1 8

Included observations: 8

Variable Coefficient Std. Error t-Statistic Prob.

C -13.66964 3.132332 -4.364046 0.0073

K 20.57440 1.596995 12.88320 0.0001

K2 -2.008929 0.173218 -11.59766 0.0001

R-squared 0.973868 Mean dependent var 27.68750

Adjusted R-squared 0.963415 S.D. dependent var 11.73803

S.E. of regression 2.245167 Akaike info criterion 4.735433

Sum squared resid 25.20387 Schwarz criterion 4.765224

Log likelihood -15.94173 F-statistic 93.16674

Answer:

Production Function

Q= a + bX -cX2

= - 13.67 + 20.57 K – 2.01K2

Mp = dq/dx

= 20.57 -2(2.01) k

= 20.57 – 4.02K

Mvp = mp * P

= (20.57 – 4.02K) * 2

= 41.14 – 8.04K

MVP = Px

41.14 – 8.04K = 6

K = 4.3741
Question 10: Corporate profits (Pt-1) for all firms in the country were about RM100

billion. GDP for the nation is composed of Consumption (C), investment (I), and

government spending (G). It is anticipated that the federal state, and local governments

will spend in the range of RM200 billion next year. On the basis of an analysis of recent

economic activity in the country, consumption expenditures are assumed to be RM100

billion plus 80 percent of national income. National income is equal to GDP minus taxes

(T). Taxes are estimated to be at a rate of 30 percent of GDP. Finally, corporate

investments have historically equaled RM30 billion plus 90 percent of last year’s

corporate profits (Pt-1).

a. Construct a five-equation econometric model of the country. There will be a

consumption equation, an investment equation, a tax receipt equation, an

equation representing the GDP identity, and national income equation.

b. Solve the system of equations to arrive at next year’s forecast value for C, I,

T, GDP, and Y. (Hint: it is easiest to start by solving the investment equation and

then working through the appropriate substitutions in other equations).

Answer:

Pt-1 = 100

G = 200

GDP Equation:

GDP = C + I + G
Consumption Equation:

C = 100b + 0.8Y

National Income Equation:

Y = GDP – T

Tax Receipt Equation:

T = 0.3GDP

Investment Equation:

I = 30 + 0.9 Pt-1

B.

Answer:

I = 30 + 0.9 (Pt-1)

I = 30 + 0.9 (100)

I = RM 120.00

Y = GDP – T

Y = GDP – 0.3GDP

Y = GDP – 0.3GDP

Y = 0.7GDP7

C = 100b + 0.8Y

C = 100b + 0.8 (0.7GDP)

GDP = 100 + 0.56 GDP + 120 +200

GDP = 0.56 GDP + 420

GDP = 954,545

Y = 0.7GDP
Y = 0.7 (945.545)

Y = 668.181

C = 100b + 0.56 (200b)

C = 100b + 112b

C = 634.545

T = 0.3 (954546)

T = 286.366

Final Answers:

GDP = RM 954.545

C = RM 634.54

I = RM 120

T = RM 286.364

Y = RM 668.18

Question 11: Economic tools for policy makers extract from macroeconomic theory

enable them to have economic growth, full employment (or low unemployment), and
stable prices (or low inflation). A fundamental theory that we have learnt in the class is

aggregate demand and aggregate supply model. You are required explain this model.

a. What are the causes and implications of shifts in aggregate demand?

b. How does productivity growth and changes in input prices change the

aggregate supply curve?

c. Use the aggregate demand-aggregate supply model to explain recessions,

expansions and economic growth.

d.Explain how unemployment and inflation can be explained using the aggregate

demand-aggregate supply model

a. Answer:

Cause:

Aggregate demand affected by Consumption, Government spending, Investment and Net

export.

Aggregate Demand = C + I + G + N

If any components increase of aggregate demand , the aggregate demand curve will shift to

the right and if any components decrease , the curve will shift to the left.

Implication:

When AD increase , the AD curve will shift to the right. This is caused by GDP growing

positively, price increase, unemployment decrease, economic growth increase, and recession

goes down, and higher inflation.

reasons.

B.

Answer:

If the productivity growth positive , AS curve will shift right. Also it will affect the

production to produce more, if the price is not increase.

businesses to use more resources or inputs to generate an output. As such, the economy's

potential production decreases too.

When input prices increases , the aggregate supply curve shifts to the left. Because when the

price of raw materials, labor, or other production inputs

Increases , it becomes more expensive for firms to produce goods and services.

Therefore, they will need to whether increase their selling prices to maintain profits

(inflationary effect) or reduce production to keep prices steady (decreased output).

Also, the leftward shift of the AS curve captures the cumulative effect of rising marginal

costs across all firms in the economy when input prices go up.
On the opposite, a decrease in the price of raw materials, labor, or other production inputs

makes it cheaper for firms to produce goods and services. Thus, it allows them to whether

reduce their selling prices and potentially gain market share (potentially disinflationary

effect) or increase production while maintaining current prices (increased output).

C.

Answer:

Recessions: A pro-long negative growth. When recessions happen, it will decrease

consumer spending and investment. Hence, it will shift the aggregate demand

curve to the left.

Expansions: When expansions happen, it will be more likely affecting the aggregate demand

curve shifting to the right. This is due to the reason that expansions caused by the rise

investment and higher consumer spending.

to the right. Mostly, this happened because there is higher productivity, advance technology,

and improvement in labour force

D.

Answer:

Unemployment: Unemployment can be explained using the AD-AS model by considering the

position of the economy relative to its potential GDP as indicated in the vertical LRAS line.

When the economy is producing below its potential GDP, cyclical unemployment exists.

Cyclical unemployment increases when the economic output falls substantially below

potential GDP.
In the above scenario, economic activity at E0 is farther from the potential Gross Domestic

Product (GDP), hence the unemployment rate is higher at this point. On the other hand,

output at E1 reaches potential/full GDP, resulting in a reduced rate of unemployment and

closer to full employment.

Inflation: The connections between AS, AD, and inflation is significant. Inflationary stresses

may occur if total demand continues to shift to the opposite direction after the economy has

reached or exceeded its potential gross domestic product (GDP), as shown in the change of

equilibrium from point EO to point E1 in the left figure.

A fall in AS could also cause inflationary pressure. This results in a shift in the equilibrium

price and production of the both AD and AS curves.

Industry Research has maintained its forecast for Malaysia’s real gross domestic

product (GDP) growth to slow to 4.0% in 2023, from 8.7% in 2022. This is partly due to

the slowing global demand, tighter credit conditions, and a weakening global growth

outlook. The export outlook will likely weaken further on the back of a slowing global

economy, and as the semiconductor industry continues to be in a downcycle. If you are

appointed as an economic advisor, what are the monetary and fiscal policies that can be

employed to improve or at least maintain the Malaysia’s economic growth?

Answer:

Monetary Policy:

Interest Rate Adjustments: To stimulate lending and investment, the central bank could

think about reducing interest rates. Lower interest rates would motivate businesses and

customers to borrow, spend, and invest, resulting in increased GDP.

Funding Assistance: The central bank may provide funding to banks via open market

activities or the use of quantitative easing. This would guarantee that banks have enough

liquid to make loans to companies and customers, even if allowing conditions worsen.

Foreign Exchange Control: The central bank can act in the foreign exchange market to

assist maintain the currency and improve the competitiveness of exports. A lower exchange

rate may make Malaysian goods more desirable in overseas markets, mitigating the

consequences of decreasing worldwide consumer demand.

Fiscal Policy:
Expanded Governments Expenses: To boost consumer demand and generate jobs, the

government could increase spending on development of infrastructure, education, and

healthcare, between other sectors. This fiscal boost would assist in reducing the decline in

exports and investment from the private sector.

Tax Incentive for Expenditure: The government could provide tax reductions or incentive

to companies in order to promote investment, innovation, and growth. This could motivate

businesses to make investments despite adverse economic conditions, so encouraging

economic growth.

Fundamental Changes: The government might implement fundamental changes that would

enhance the business environment, increase productivity, and expand the economy. This

might involve policies that reduce rules, improve infrastructure, and promote innovative

thinking and entrepreneurship