ECO402 Microeconomics Assignment No.2 Solution Spring Semester 2013

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ECO402 Microeconomics Assignment No.2 Solution Spring Semester 2013

SEMESTER
SPRING
2013
MICROECONOMICS
(ECO402)
ASSIGNMENT
NO.
02
D
UE
D
ATE
:
24
TH
J
UNE
,
2013
M
ARKS
:
30
A
SSIGNMENT
:
The case:
Dewan Farooque Motors Limited (DFML) is a Pakistani manufacturer of automobiles
under license to Hyundai Motor Company and Kia Motors Corporation since 1998. The
company is a subsidiary of Dewan Mushtaq Group, headquartered in Karachi with an
assembly plant located in Sujawal. According to Budget 2013-2014, Hybrid cars up to
1200cc will not have any duty, sales tax or income tax. Further, duty on Hybrid Vehicles
of 1201cc to 1800cc has been reduced by 50 percent and from 1801cc to 2500cc to be
reduced by 25 percent. To analyze the impact of this tax release on its sales, Dewan
Farooque Motors Limited analyzed company’s facts and figures of past years and
estimated its data for year 2013. Hypothetical data on price, quantity and total cost of the
company has been given below:
Year Price Unit sold
(Q)
Total Cost
(TC)
2008 325 150 29000
2009 350 140 35000
2010 425 130 49000
2011 510 125 56000
2012 630 100 60000
Estimated
2013
720 80 65000
Requirements:
Use the above information and:
A.
Calculate average cost and average revenue of Dewan Farooque Motors Limited
for each year.
B.
Calculate for each year whether company is operating at profit or loss.
C.
Determine the quantity sold and price level at which the total profit for company is
maximized.
D.
Suppose Dewan Farooque Motors Limited has hired you as an Economist to
analyze the impact of this tax release on its sales. Discuss how this decision will
affect the sales of this company?
Marks: (A=6+6), (B=6+6), (C=3), (D=3)
Instructions:

Please read the following instructions carefully before preparing the assignment solution:

Solution of Part A and Part B should be in the following tabulated format.
Part A
Part B
AC
AR
TR
Profit/Loss

Calculate to the point where calculation is being required. NO need to write
irrelevant material or extra interpretation.

This Assignment can be best attempted from the knowledge acquired after
watching video lecture no. 16 to lecture no. 26 and reading handouts as well as
recommended text book.
I
MPORTANT
:
24 hours extra / grace period after the due date is usually available to overcome
uploading difficulties. This extra time should only be used to meet the
emergencies and above mentioned due dates should always be treated as final
to avoid any inconvenience.