Nabila Nur Amalina Luthfi

F0222129
UJIAN TENGAH SEMESTER
EKONOMI MANAJERIAL

1. The Klein Corporation’s marketing department, using regression analysis, estimates

the firm’s demand function, the result being Q =-104- 2.1P + 3.2I + 1.5A + 1.6Z
R2 = 0.89

Standard error of estimate = 108

where Q is the quantity demanded of the firm’s product (in tons), P is the price of the
fi rm’s product (in dollars per ton), I is per capita income (in dollars), A is the firm’s
advertising expenditure (in thousands of dollars), and Z is the price (in dollars) of a
competing product. The regression is based on 200 observations.
a. According to the statistical software, the probability is 0.005 that the t statistic for
the regression coefficient of A would be as large (in absolute terms) as it is in this
case if in fact A has no effect on Q. Interpret this result.
Solve:
Interpreting the results above, there’s an evidence that even if we don’t consider the
expenditure on advertising, the proportion of it has a nonzero impact on Q. If Q
and A are independent, the likelihood of such a high t statistic is only 1 in 200.
Klein should conclude that increases in A will, under normal circumstances, result
in an increase in Q if it’s certain that Q is not the cause of A.

b. If I = 5,000, A = 20, and Z = 1,000, what is the Klein Corporation’s demand curve?
Solve:
Q = -104 - 2.1P + 3.2(5,000) + 1.5(20) + 1.6(1,000) = 17,536 - 2.1P

c. If P = 500 (and the conditions in part b hold), estimate the quantity demanded of the
Klein Corporation’s product.
Solve:
P = 500
Q= 17,536 -1,050 = 16,486

2. The White Company is a member of the lamp industry, which is perfectly competitive.
The price of a lamp is $50. The firm’s total cost function is
TC = 1,000 + 20Q + 5Q2

where TC is total cost (in dollars) and Q is hourly output.

 a. What output maximizes profit?
Solve:
MC = 20 + 10Q.

Use the P = MC formula to determine the equilibrium quantity if the

firm is perfectly competitive. In other words, 20 + 10Q = 50.
Consequently, Q = 3. Furthermore, since the MC curve is a straight
line with a positive slope of 10, we can see that it is an increasing
function of Q. Therefore, the amount of Q, which is three bulbs every
hour, maximizes profitability.

b. What is the firm’s economic profit at this output?

Solve=
Profit = R(Q = 3) - TC(Q=3)
= 50(3) - (1,000 + 20(3) + 5(3)^2) = -$955

c. What is the firm’s average cost at this output?

Solve:
ATC= (1,000 + 20(3)) + 5(3)^2) / 3 = $368.33

d. If other firms in the lamp industry have the same cost function as this firm, is the
industry in equilibrium? Why or why not?
Solve:
The $1,000 in fixed costs is not being covered by any of the firms. The industry can’t be in
the equilibrium if the firms are actually suffering significant losses in comparison to their
revenues. Businesses will leave until the price rises to the industry average, which is
around $161.42, which is the lowest cost of the remaining businesses.

3. The East Chester Tribune must decide whether to publish an online Sunday edition.
The publisher thinks the probability is 0.6 that this
Sunday edition would be a success and 0.4 that it would be a failure. If it is a success,
she will gain $100,000. If it is a failure, she will lose $80,000.
a. Construct a decision tree corresponding to the problem, and use backward induction
to solve the problem. (Assume that the publisher is risk-neutral.)
Solve:
 b. List all forks in the decision tree you constructed; then indicate whether each is a
decision fork or a chance fork and state why.
Solve:
Choosing whether or not to publish is the first fork. The second fork, when publishing
either succeeds or fails, is a chance fork.

4. Recently, Indonesian government are planning to provide subsidies for renewable

energy products. Please elaborate how these subsidies can create deadweight loss if not
balanced with appropriate policies? What alternatives could be implemented to minimize
this loss?
Solve:
Subsidies for renewable energy products can create deadweight loss if not balance
with appropriate policies due to several reasons, such as:
a. Overproduction: This excess supply can discipline the market by forcing efficiency
since too much capital and labor are used to produce renewable energy as opposed
to other goods and services that consumers may want more.
b. Inefficient Allocation of Resources: This can lock out efficient producers from
coming into the market or increasing their output, leading to a misallocation of
resources that increases in A will, under normal circumstances, result in increases
in Q if it is for sure that Q does not lead to A.
c. Distortion of Consumer Behavior: The provision of subsidies alters the market
prices for RE products, whereby the RE products can be cheaper than when they
have to compete for market prices.
d. Rent-Seeking Behavior: Some organizations may go to extreme in converting
resources into lobbying for or demanding subsidies instead of investing in
enhancing their offers and production techniques.
Due to the occurrence of deadweight losses in the renewable energy subsidies the
following mechanisms could be adopted by the Indonesian government; output based
subsidies, temporary subsidies, selective subsidies, regulatory changes, and market
instruments. Pay to performance mechanisms would prompt increased performance and
guarantee that wastage resources are sustained only on progressing projects. Some of the
subsidies could be made temporary to force companies to look for ways to be competitive
for a long time without the help of the government. Perhaps, future targeted subsidies
could be directed towards the most important technologies or industries with large
innovation capacities.

5. In the context of the rapidly changing fashion industry, how can local brands in
Indonesia leverage data analysis to project seasonal demand? What challenges might be
faced in this process?
Solve:
Indonesian fashion companies can apply data analysis for forecasting the seasonal
demand of local brands. This includes collection of past sales, customers’ behavior,
existing market conditions and movement of the business throughout the course of the
year. Data integration is then utilized to construct a market and consumer profile. Trend
analysis to pinpoint trends and patterns of the data, through which chance of a particular
style, color or product being demanded by the public in a certain season is forecasted.
Demand forecasting is done by employing any models such as time-series, regression
models or employed machine learning methodology.

Some of the issues that arise when tackling this process include, data quality and
availability issues, technical skills, cultural and market differences, fast changing markets,
complex supply chains that are in place, technology investment needed, and issues on
privacy and compliance. If local brands tackle these issues and make efficient use of data
analysis to enhance their projection of seasonal demands then this will depict an enhanced
inventory flow management, reductions in wastage, and gains in consumer satisfaction.