Managerial Economy Essay Answers
Managerial Economics
Homework #1 Answer
Demand
1. Between 2001 and 2003, China Mobile’s number of subscribers grew from 90.6 to 141.6 million as the company added subscribers and acquired service providers in the poorer inland regions of China. However, over the same period, its average revenue per user (APRU) fell from 141 to 102 yuan per month and its proportion of subscribers using pre-paid service rose from 48% to 64%.
a. How would the entry of China Unicom affect the demand for China Mobile service?
b. How would China Mobile’s provision of pre-paid service affect the demand for its post-paid (contract) service?
c. Compare the demand for pre-paid service in the inland regions with that in the wealthier coastal regions.
d. Relate your discussion in (b) and (c) to China Mobile’s decline in ARPU.
Answer:
(a) Would lower the demand.
(b) Would lower the demand as some subscribers switch from post-paid to pre-paid service.
(c) If pre-paid service is an inferior product, the demand in the inland regions would be higher.
(d) ARPU is lower for pre-paid than contract service. ARPU is lower in poorer areas than richer areas. Both of these factors explain China Mobile’s decline in ARPU.
2. The price of Chanel perfume is around $200 per fluid ounce, while the price of Arrowhead bottled water is $1 per gallon. Nancy buys 2 fluid ounces of Chanel and 10 gallons of bottled water a month.
a. Using relevant demand curves, illustrate Nancy's choices. Illustrate how the following changes will affect Nancy's demand for Chanel perfume: (i) price increase to $220 per fluid ounce, and (ii) cut in price of another of Nancy's favorite perfumes.
b. Nancy spends more money each month on perfume than bottled water. Does this necessarily mean that perfume gives her more total benefit than water? Use appropriate demand curves to address this question.
Answer:
(a)This will decrease the quantity demanded
Homework #1 Answer
Demand
1. Between 2001 and 2003, China Mobile’s number of subscribers grew from 90.6 to 141.6 million as the company added subscribers and acquired service providers in the poorer inland regions of China. However, over the same period, its average revenue per user (APRU) fell from 141 to 102 yuan per month and its proportion of subscribers using pre-paid service rose from 48% to 64%.
a. How would the entry of China Unicom affect the demand for China Mobile service?
b. How would China Mobile’s provision of pre-paid service affect the demand for its post-paid (contract) service?
c. Compare the demand for pre-paid service in the inland regions with that in the wealthier coastal regions.
d. Relate your discussion in (b) and (c) to China Mobile’s decline in ARPU.
Answer:
(a) Would lower the demand.
(b) Would lower the demand as some subscribers switch from post-paid to pre-paid service.
(c) If pre-paid service is an inferior product, the demand in the inland regions would be higher.
(d) ARPU is lower for pre-paid than contract service. ARPU is lower in poorer areas than richer areas. Both of these factors explain China Mobile’s decline in ARPU.
2. The price of Chanel perfume is around $200 per fluid ounce, while the price of Arrowhead bottled water is $1 per gallon. Nancy buys 2 fluid ounces of Chanel and 10 gallons of bottled water a month.
a. Using relevant demand curves, illustrate Nancy's choices. Illustrate how the following changes will affect Nancy's demand for Chanel perfume: (i) price increase to $220 per fluid ounce, and (ii) cut in price of another of Nancy's favorite perfumes.
b. Nancy spends more money each month on perfume than bottled water. Does this necessarily mean that perfume gives her more total benefit than water? Use appropriate demand curves to address this question.
Answer:
(a)This will decrease the quantity demanded