BE274 Managerial Economics - Essex Business School
Part One
University of Essex is considering eliminating the use of trays in the university campus' cafeteria as a way of reducing energy costs and fulfilling the university's Sustainability Sub-Strategy (SSS). The University has spent £40,000 in the purchase of 20,000 trays for the campus' cafeteria. Advocates argue that the fewer the number of trays used, the lower will be the costs of cleaning the trays, resulting in savings on water and overall energy usage. Based on an experiment conducted in 2019 in which students were asked to voluntarily reduce their use of trays, the university was able to estimate the annual cost savings associated with varying levels of cooperation, and are given in the table below. In the experiment, however, it became clear that as students used fewer trays, additional help was needed to bus tables and clean them after meal periods were over. Additional labour costs were estimated to be an additional £20.00 for every tray no longer used. Also, higher energy costs were needed to keep the cafeteria open and lighted to clean it, amounting to £500 per 100 trays reduced annually.
|
Number of Trays No Longer Used
|
Total Cost Savings
|
|
5,000
|
100,000
|
|
6,000
|
190,000
|
|
7,000
|
270,000
|
|
8,000
|
340,000
|
|
9,000
|
400,000
|
|
10,000
|
450,000
|
|
11,000
|
490,000
|
|
12,000
|
520,000
|
|
13,000
|
540,000
|
|
14,000
|
550,000
|
With reference to the data obtained from the experiment on the number of trays no longer used and total cost savings above, you are asked to write a short report that includes: a) describing the marginal analysis you conduct and present your estimates of MB, TC, MC, and NB together with data provided in a table, b) determining the optimal level of activity with justification the University should aim for in order to best serve its SSS, and c) explaining why. (30% of the total mark)
Part Two
According to Milton Friedman, American economist who received the 1976 Nobel Memorial Prize in Economic Sciences, "Business has only one social responsibility - to make profits (as long as it stays within the legal and moral rules of the game established by society). Few trends could so thoroughly undermine the very foundations of our society as the acceptance by corporate officials of a social responsibility other than to make as much money for their stockholders as possible".
Write a short essay to discuss these questions (1,200 words, 70% of the total mark):
- Why do many firms fail to achieve the objective of profit maximization? (600 words, 35% of the total mark)
- Can we ask firms with the objective of profit maximization to take on more social responsibility? (600 words, 35% of the total mark)
Learning Outcome 1: demonstrate a critical understanding of different economic concepts and how they can be used in business situations;
Learning Outcome 2: understand the methods and tools of economics and how they are applied to business situations
Learning Outcome 3: use theory and economic analysis to solve real world business problems
1 Critical thinking: Understanding of different economic concepts and their applicability in the real world
2 Commercial Awareness: Knowledge about current issues in economics and commerce, directly relevant to firms,
businesses and industries
3 Strategic thinking: Ability to think in terms of strategic interactions
4 Quantitative skills: ability to apply quantitative techniques to demand estimation and forecasting as well as production and cost estimation
Attachment:- Managerial Economics.rar