Reference no: EM131808066

Assignment

Use the case below to answer the following questions:

a) Establish an equation for Marginal Revenue (MR), Marginal Cost (MC), Total Profit (p) and Marginal Profit (Mp).

b) Set up a table for SGL Merchant's output (Q), price (P), total revenue (TR), marginal revenue (MR), total cost (TC), Marginal Cost (MC),

Total Profit (p), and Marginal Profit (Mp). Establish a range for Q from 0 to 1000 in increments of 100 (i.e., 0, 100, 200, and 300).

c) Using the table, sketch a graph with TR, TC, and p as dependent variables, and units of output (Q) as the independent variable.

d) At what price/output combination is total profit maximized? Why?

e) At what price/output combination is total revenue maximized? Why?

f) Determine these profit-maximizing and revenue-maximizing price/output combinations analytically. In other words, use SGL's profit and revenue equations

to confirm your answers to part C.

g) Compare the profit-maximizing and revenue-maximizing price/output combinations, and discuss any differences.

h) When will short-run revenue maximization lead to long-run profit maximization?

i) Why do you think business owners need some knowledge in economics in their activities?

CASE STUDY

Miss. Adwoa Boakyewaa is a graduate from Valley View University Business School and the Chief Executive Officer (CEO) of SGL Merchants for the past ten (10) years. Miss Adwoa over the years sell ceramic tiles for construction companies across the country. In the last four (4) years, as a result of "Dumsor" local ceramics companies producing the products are not be able to meet the demand because of soaring energy prices, difficulty in accessing raw materials and other cost of utilities resulting most companies experiencing diseconomies of scale.

However, there are some sub-sectors within ceramics that are more concentrated. The brick and roof tile sub-sector is dominated by large multinational firms that have a wide spread of production plants and products to meet some local demands. The many small and medium sized firms which constitute the cluster that are configured into consortia of suppliers, producers and market facing firms. Despite this combining of firms and talents, many of these groups still operate several brands, rather than come under a single brand. As a result, there is competition between and within these production groups. Ceramics with lower value added are generally not exported long distances due to the high unit transport costs, hence exports consist predominantly of fine ceramics that are typically of high quality and added value, and of relatively low weight. Trends in interiors décor are rapidly becoming influenced by what is happening in the fashion sector. That also has implications for ceramic home decorations and accessories, in two important and potentially contradictory ways. Firstly, trends will be shorter and so innovation will become even more important in differentiating oneself from one's competitors. At the same time, however, consumers are tired and stressed-out, and that is leading to the so-called 'slow' movement. At product level, it means fewer gadgets, but designs with longevity, using sustainable materials and designs that continue to please even after the buying season is over. This might translate into fewer decorative knick-knacks and more emphasis on functionality. In both trends, however, design is of prime importance.

A general issue in the whole Ghana is the awkward position of the middle segment in the ceramic home decoration and accessories market. In the lower segment, goods are distinguished according to price whereas the upper segments are distinguished according to quality. However, in the middle segment it is not very easy to differentiate one product from another. Despite the crisis, Miss. Adwoa Boakyewaa orient herself in the ceramic marketing the past 4 years of "Dumsor" and prepared to import low to middle types of ceramics to take advantage of the market. At the moment, her customers are postponing spending but when 2016 election is over in December, it is believed, customers will start to spend again and this according to Analyst will trigger sales of ceramic tiles and accessories. While overall consumption of ceramics tiles continues to increase, the average unit value for ceramics have been on a continuous decline due to higher duty rates on imports and possibility to get worse of the current 17.5% financial Services tax. The difficult Ms. Adwoa Boakyewaa faced is the required market research to find way and means to improve her marketing. Accordingly, she appointed a consultant from Building Department of Valley View Univeristy who at the end of their market research projected the demand and cost relations as follows;

P = GH¢150,000 - GHS0.019Q

TC = GHS250,000 + GHS5Q + GHS0.0020Q2;

Where; P = Price, Q = Output TC= Total Cost