MANAGERIAL ECONOMICS Instructor: Dr. Mehmet A. Soytas Homework Assignment 2 Due Date: 16.11.2011 Question 1: The slope of the budget constraint is given as the ratio of the relative prices of the two goods. Therefore, a proportional change in the prices does not a¤ect the slope. Given that the price ratio remains same, individual chooses a new bundle just proportionally increasing (decreasing) the amounts of each good purchased at the previous prices if the prices decrease (increase). Do you agree with the above statement? Please explain your reasoning (with graphical representation if necessary). Question 2: A very important result we obtained during the lecture is the following: M RS = Why is this condition so important? Question 3 Suppose you observe three people in the market. Each chooses di¤erent combinations of the bundles formed of goods F and C as follows: Individual 1 chooses (5,5) with a budget 100. Individual 2 chooses (7,2) with a budget 80. Individual 3 chooses (6,6) with a budget 120. You have the following functions which characterize the individuals preferences Ui = ai F + 2i C i = 1; 2; 3 PF PC

a) You are given the information that the utility individual 1 gets from consuming her bundle is 20. What can you say about the coe¢ cients of the model, a1 , a2 , a3 ? b) What about the utilities of individual 2 and 3? c) Suppose you are not given the information in a (the utility of individual 1), but the information that price of F is twice the price of C. What can you say about the coe¢ cients of the model, a1 , a2 , a3 ? d) How your response to c changes if all you know is the price of good F and the information that the bundles (2,2) and (3,1) are on the same indi¤erence curve for individual 1? e ) From the result in d, can you say anything about the price of C? Question 4 Suppose you are the marketing manager of XYZ company and you o¤er the following baskets as a new product to the individuals in the market : (5,5), (9,1), (10,0). a) You...

...SIMULATION MODELING AND ANALYSIS WITH ARENA
T. Altiok and B. Melamed
Chapter 5 Arena Basics
Altiok / Melamed Simulation Modeling and Analysis with Arena Chapter 5 1
The Arena Simulation System
• Arena is a powerful simulation environment
• consists of modeling object templates, called modules, and transactions that move among them, called entities • has a visual front-end • built around SIMAN block-oriented language constructs and other facilities
• SIMAN consists of two classes of objects:
• Blocks are basic logic constructs that represent operations, such as SEIZE blocks that model seizing of a facility by a transaction entity, while RELEASE blocks release the facility for use by other transaction entities • Elements are objects that represent facilities, such as RESOURCES and QUEUES
• Arena modules are are selected from template panels
• examples: Basic Process, Advanced Process, Advanced Transfer
• Arena modules are high-level constructs that functionally equivalent to sets of SIMAN blocks and/or elements, and internally are built of SIMAN blocks and/or elements
Altiok / Melamed Simulation Modeling and Analysis with Arena Chapter 5 2
The Arena Home Screen
Title Bar Menu Bar Run Interaction Toolbar View Toolbar
Standard Toolbar
Drawing Toolbar
Animate Toolbar Animate Transfer Toolbar
Template Panel Project Bar Toolbar Model Window Canvas Flowchart View
Model Window Canvas Spreadsheet View
Altiok / Melamed Simulation Modeling...

...GOVAN’S CATERING SUPPLIES
1.
Comment on the performance of the company.
2.
Why has this profitable company had to borrow so much money from the bank?
3.
What overdraft would Govan expect to have if he continues with “business as
usual”?
4.
Should Govan take advantage of the 2½% settlement terms offered by his
suppliers? Explain.
5.
As Govan's financial adviser, would you encourage him to go ahead or
reconsider his anticipated expansion and his plans for its financing? What
should he do?
6.
As his banker would you approve his loan request? If so, would you put any
conditions on the loan?
7.
(Optional extra question…) Estimate a selling price for the business.
GOVAN’S CATERING SUPPLIES
After a rapid growth in its business during recent years, at the start of 2012, Govan’s
Catering Supplies anticipated a further substantial increase in sales. Despite good
profits, which were largely retained in the business, the company had experienced a
shortage of cash and had found it necessary to increase its borrowing from the
Capitec Bank to R1.73m in early 2012. The maximum loan that Capitec would make
to any one borrower was R1.75m, and Govan’s had been able to stay within this limit
only by relying very heavily on trade credit. Mr Govan Moodley, sole owner of Govan’s
Catering Supplies, was therefore actively looking elsewhere for a new banking
relationship where he would be able to negotiate a larger loan.
Govan had recently...

...1. Based on historical data, you have estimated the following probability distributions for the returns on two individual securities (SMALL and BIG) and the value-weighted market portfolio:
State probability Small Big Market
Expansion 0.30 25% 8% 12%
Normal 0.5 15% 6% 10%
Recession 0.20 0% 2% 3%
a) Calculate the expected return and standard deviation of return for Small, Big and the market portfolio
b) Calculate the covariance between Small and Big; between Small and the market, and between Big and the market.
c) Calculate the expected return and standard deviation of return for a portfolio that consists of ½ Big and ½ Small.
d) Calculate the expected return and standard deviation of return for a portfolio that consists of 3/4 Big and 1/4 Small.
e) Compare the five investment opportunities: the two portfolios in c) and d), the individual securities Small and Big, and the market portfolio. Without performing any calculations, can you recommend buying (or not buying) any of these investments?
2. The investment opportunity set above has been enhanced by the inclusion of a risk-free investment that pays 1%. Does access to this asset change your answer to 1e) above? Feel free to use calculations.
3. What is the beta of Small in the problem above? What is the beta of Big? If the CAPM is true, is Small in equilibrium, is it undervalued or is it overvalued? What about Big? You may continue to assume that the...