ECON1048 Managerial and Business Economics Report Semester 2, 2022
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ECON1048 Managerial and Business Economics Report
Semester 2, 2022
1 Introduction
In this assignment you will take the role of a professional economist, assessing the likely impacts of the proposal detailed in section 2. You will analyse the proposal using techniques developed throughout this course, and prepare a research report detailing your findings and their implications .
1.1 Formatting requirements
Your assignment must be typed using Microsoft Word, or a similar word processor . The document should have a professional appearance, appropriate to a corporate workplace . Format your assignment as follows:
● Use A4 sized paper with all margins at least 2 .5cm .
● Include a title page as the first page of your report .
● Body text to be 12pt and black . (There is no minimum line spacing .)
● Include a word count at the end of every section except the analysis section .
● All pages, except the title page, to be numbered .
● Use headings to indicate sections, and subheadings to provide organisation and struc- ture within a section . (Do not use subheadings in the introduction or conclusion .)
● Optional: Save your assignment as a PDF to ensure that your document and equa- tions appear as you intend .
1.2 Grading
There are a total of 100 marks available in this assignment, and the assignment contributes 40% of your grade for Managerial and Business Economics . The marks allocated to each step of the report’s analysis section are detailed in section 3. The marking criteria for the remainder of the assignment can be found in the rubric .
2 Scenario
In the island nation of Autarka there are two amusement parks: Alfonso’s Wonderland and Bernice’s Wild Rides . The amusement parks are located at either end of the island, 1km apart .
Recently, a third firm, VendorCorp, has developed a new automation technology which promises to improve the efficiency of amusement park rides . VendorCorp is offering to sell the exclusive rights to this technology, and has asked the two parks to submit bids .
The new technology promises to reduce the marginal cost of operating rides for a customer by $6 . However, experience in other countries has shown that, in about 20% of amusement parks, the technology encounters compatibility issues and only reduces the marginal cost by $1 .50 . Unfortunately, there is no way to know whether these issues will be encountered until the technology is installed .
2.1 Your task
You have been hired by Alfonso’s Wonderland to analyse the business case for purchasing the exclusive rights to the automation technology. You have been asked to determine:
● The maximum price Alfonso’s Wonderland should be willing to pay for the technology.
● The price that Alfonso’s Wonderland is likely to have to pay if it is successful .
● The consequences for Alfonso’s Wonderland if Bernice’s Wild Rides purchases the exclusive rights instead of Alfonso’s Wonderland .
2.2 The Market
In Autarka there are 7200 people who like to visit an amusement park . Each of these consumers wants to visit one park once . The consumers’ homes are evenly spaced across the island, and they each suffer a disutility of $20 for each kilometre they travel to reach an amusement park .
With their current technology, it costs an amusement park $11 for each customer they host . At present, the equilibrium price for an amusement park ticket is $31, and each firm has a profit of $72,000 .
This market is best modelled as Hotelling competition . You should neglect fixed costs throughout your analysis .
Note: For the purposes of this assignment you should treat this market as a one- shot game. Do not consider repetition or associated phenomena such as collusion or predatory pricing.
3 Report
Your report should be prepared with the following structure:
1. Introduction
2. Analysis
3. Discussion
4. Conclusion
The requirements for each section of the report are detailed below .
3.1 Introduction
In your introduction you should succinctly and accurately summarises the purpose of your report . You should also outline the methodology employed in your analysis, and your key findings . The introduction has a 200 word limit .
3.2 Analysis
In the analysis section you must complete each of the steps detailed below . When com- pleting the steps you must:
● Type all equations using the ‘Insert Equation’ function (or equivalent) .
● Show all of your working and include sufficient written description for the reader to follow your process .
Note that hand draw figures and equations are not acceptable . There is no word/page limit for the analysis section.
Step 1: Derive an expression for the location of the indifferent consumer . Use PA to represent the price of admission at Alfonso’s Wonderland, and PB to represent the price of admission at Bernice’s Wild Rides . (2 marks)
Step 2: Find the profit function for Bernice’s Wild Rides . You should assume that Ber- nice’s marginal cost is $11 . (4 marks)
Step 3: Find Bernice’s best-response function . (4 marks)
Step 4: Find the profit function for Alfonso’s Wonderland for the case in which their marginal cost is $5 . (4 marks)
Step 5: Find the best-response function for Alfonso’s Wonderland for the case in which their marginal cost is $5 . (4 marks)
Step 6: Find the equilibrium prices and profits for the case in which Alfonso’s marginal cost is $5 and Bernice’s marginal cost is $11 . (7 marks)
Step 7: Find the profit function for Alfonso’s Wonderland for the case in which their marginal cost is $9 .50 . (4 marks)
Step 8: Find the best-response function for Alfonso’s Wonderland for the case in which their marginal cost is $9 .50 . (4 marks)
Step 9: Find the equilibrium prices and profits for the case in which Alfonso’s marginal cost is $9 .50 and Bernice’s marginal cost is $11 . (7 marks)
3.3 Discussion
In your discussion you should address all the issues raised in the scenario . This includes explaining the significance of the findings of your analysis in the context of the scenario, and providing arguments in support of the conclusions of your report . Be sure to base your discussion on the results in your analysis section and avoid assertions or speculation . Use economic terminology as appropriate . The discussion has a 500 word limit .
3.4 Conclusion
Your conclusion should succinctly and accurately summarises the findings of your analysis and the implications of these findings for the scenario . The conclusion has a 200 word limit .
2022-08-10