ECON1267 – QUANTITATIVE ANALYSIS

SEMESTER 3, 2019

Case study analysis (Individual): Total Score: 50 marks

INSTRUCTIONS:

1. This document consists of 5 case studies.

2. Make sure to type your solutions and submit your word file in Turnitin through
canvas submission.
3. Handwritten scanned solutions will not be acceptable.

The submission is due on 9th January, Thursday 5 pm (Week 13).

ECON1267 – Individual Case Study Analysis, Semester 3, 2019 Page 1 of 5

 Case 1 (12 marks)

It becomes important for managers to accurately forecast the demand of their product
and also understand as how the demand of other products might affect their own
product’s demand. In a rapidly growing market like energy drinks, firms need to
capture the market scenario quick enough. Firms that fail to keep up the changing
pace with the market can lose out to their competitors. Red bull is one of the brands in
the energy drink industry. Red bull has estimated the demand of its product by the
following function:

Q = 12.5 P0-1.1A2.1Y1.3P-1.8
Where, Q = Number of energy drink bottles sold of Red bull
P0 = Price of red bull energy drink bottle (in $)
A = Promotional expenditure yearly in $100
Y = Average income of the consumers per month in $100
P = Number of people using the gyms per month

The current price for one bottle of Red Bull energy drink $3, promotional expenditure
is $600, Average income of consumers is $500 and on an average 100 people are
going to gym every month.

You are a quantitative analyst and your role is to analyze the below situations in the
given scenario. Explain the reason of your analysis done in each below case
supporting by calculations.

a) Will the revenue of Red Bull decrease, if they increase the price of their
bottles?
b) How the price of Red Bull energy drink, promotional expenditure and income
of the consumers will affect the sales of Red Bull bottles?
c) If number of people going to gym increases, does it affect the sales of energy
drink bottles?
d) How much will be the demand for bottles sold increases, if the income of the
consumers increases by x % (x = the last digit of your student id)?
e) Will the profit of Red Bull reduce, if they increase the price of their energy
drink bottle?
f) Do you think Gym subscription can complement the sale of Red Bull energy
drink?

ECON1267 – Individual Case Study Analysis, Semester 3, 2019 Page 2 of 5

 Case 2 (10 marks)

Susan is working in a designer company designing the stylish purses with two designs
x and y. Susan sells these purses to the consumers and the weekly revenue of these
purses are given by the following function:

TR = -2x2 + 2xy – 2y2 + 40x + 44y – 50

Susan spends 2 hours working on design x and 4 hours working on design y and she
can spend maximum of 160 hours in a month on this project. Susan’s task is to
maximize the weekly revenue by selling these designer purses. Based on this scenario,
analyze the below questions:

a) Determine the number of purses to be designed per week (x and y), provided
that Susan can work any number of hours per week.
b) If Susan only wants to work the limited amount of time as per the information
provided above in the case, how many purses could she design in a week for
design x and y?
c) How the maximum revenue will change if Susan can work one extra hour in a
week on top of the limitation she has on her working hours?
d) Do you think is it worth for Susan to work unlimited hours weekly rather than
restricting the number of hours per week in order to maximize revenue?
Explain your answer.

Case 3 (10 marks)

VietJet is an international low-cost airline from Vietnam. As a low-cost carrier,

VietJet offers the different fares based on seasonal demands in order to maximize
their profit and hence the fares vary as per the demand during peak and off-peak
season. The airline’s total demand is given by; Q = 1200 – 8P, where Q is the number
of passengers (in thousands) per year and P is the fare in US dollars. The demand in
the peak season is given by; Q = 640 – 3P and this demand function is different in off-
peak season which is given by; Q = 560 – 5P. Assume that the fixed cost is $12
million per year with a constant marginal cost of $120 per passenger. Based on this
information, discuss the below parts:

ECON1267 – Individual Case Study Analysis, Semester 3, 2019 Page 3 of 5

 a) Calculate the maximum profit, price and number of passengers given that the
airline charges only one prices irrespective of the season.
b) Calculate the maximum profit, price and number of passengers given that the
airline charges different prices based on the season.
c) Calculate and comment on the demand elasticities at the price where they get
maximum profit based on your answer in part (b) above.
d) Why do you think the airline would like to charge the different prices in
different seasons? What benefits can it bring to the VietJet by doing so?
Explain.

Case 4 (11 marks)

A famous brand of Italian luxury fashion and leather goods imports the belts at a cost
of $6 (Assume that the marginal cost is constant at $6). The company sales of leather
belts in year 2018 was 12,000 units at a price of $24 each. The company did the
market research and based on their analysis, the relationship between the sales volume
measured in thousands of units (Q) and price (P) is given by Q = 60 – 2P. Use this
information to answer the below questions:
a) Derive the equations of Total revenue, marginal revenue and the average
revenue. Draw TR, MR and AR on the same graph. Can you conclude from
the graph as from what Q, the sale of further units of leather belts will start to
reduce the total revenue?
b) The company wishes to maximize the total revenues. Can you comment
without doing any calculations whether the price would need to be higher or
lower than the profit-maximizing price? Explain your answer (Make sure not
to use any calculations/numbers to explain your answer)
c) What is the point elasticity of demand for the firm when price is $24 and
number of leather belts sold are 30,000? Is there any relationship between MR
and price elasticity when MR = 0? Explain as why the manager of the
company needs the concept of price elasticity of demand while making the
decision.

ECON1267 – Individual Case Study Analysis, Semester 3, 2019 Page 4 of 5

 Case 5 (7 marks)

One of the luxury car manufacturers usually wants to make a limited number of
automobiles in a given year and the company’s aim is to expand their profit margins
in each car sold. After doing the analysis on the sales of their cars, the company
determined the below supply and demand functions of the cars sold:

Supply function: P = 1000 + Q2

Demand function: P = 21000 – Q2

a) Calculate the producer, consumer and total surplus at the market equilibrium.
b) If the manufacturer restricts the number of cars manufactured and sold to X00
(X = third last digit of your student id (X00 will be rounded to nearest
hundred); for example if last three digits of your id is 367 then X00 = 400,
if 089 then X00 = 100; if 211, then X00 = 200) at the demand price of
$15,000, how much is the total producer surplus?
c) A manufacturer wants to maximize the producer surplus and hence determine
the quantity (give the whole number) at which this can be possible. Also
determine the producer surplus at this quantity.

ECON1267 – Individual Case Study Analysis, Semester 3, 2019 Page 5 of 5