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ECO401-Assignment # 2 Spring 2012-Solution Required

PostPosted: Mon Jun 04, 2012 7:40 pm
by Tehmeena Naseer
Due Date: June 7th, 2012

Economics (ECO401)
Assignment No. 2
Due Date: 7th June, 2012 Marks: 30
The Case:
E-Commerce refers to the buying and selling of products over electronic system like Internet
and other computer networks. An E-Product can be digitally encoded then transmitted
rapidly, accurately and cheaply. These products may include music, movies, magazines,
news, books etc. Information is expensive to produce but very cheap to copy and distribute.
Initially the fixed cost of creating a usable product is large but the marginal cost of distributing
it is tiny. Information products with high fixed cost but low marginal cost are potential
monopolies. Consider a case of Mr. Kashif who wants to promote some web based
information for the subject of Finance after combining his knowledge of computer and
finance. As Mr. Kashif has monopoly power in his product so initially when he designed the
web based course, he had to face large amount of total fixed cost of Rs.30, 000 and once his
product is launched on the web, any number of potential customers can access it without any
additional cost to him. Following table shows the strength of students who are willing to take
this course and total cost incurred by Mr. Kashif.
Number of
students Total Cost (Rs)
20 30,000
60 30,000
100 30,000
150 30,000
200 30,000
250 30,000
Part A:
a. Use the above information and calculate marginal cost (MC) and average cost (AC) at
each level of student’s strength.
b. What the values of marginal cost (MC) and average cost (AC) are showing? Interpret
in your own words.
Part B:
Following graph shows average revenue, marginal revenue and average cost curves for Mr.
Kashif drawn from hypothetical data.
Analyze the above graph and answer the following questions:
a. What will be the maximum possible number of students who will take this course
and maximum price for this course?
b. What will be the profit maximizing / loss minimizing level of output (students) for Mr.
c. Is this E-business profitable or not for Mr. Kashif? Give your answer by calculating
profit/loss value.
(Part A: 14+4, Part B: 4+2+6)
Please read the following instructions carefully before preparing the assignment solution:
 For acquiring the relevant knowledge, do not rely only on handouts but watch the
course video lectures, which can be downloaded for free from and
also use other reference books.
 For planning your semester activities in an organized manner, you are advised to view
schedule of upcoming Assignments, Quizzes and GDBs in the overview tab of the
course website on VULMS.
 This assignment will enhance your calculation and analytical skills.
Only in the case of Assignment, 24 hours extra / grace period after the due
date is usually available to overcome uploading difficulties which may be faced
by the students on last date. This extra time should only be used to meet the
emergencies and above mentioned due dates should always be treated as final
0 20 40 60 80 100 120 140 160 180 200 220 240 260 280 300
to avoid any inconvenience.
Important Instructions:
Please read the following instructions carefully before attempting the assignment solution.
· Make sure that you upload the solution file before the due date. No assignment
will be accepted through e-mail once the solution has been uploaded by the
Formatting guidelines:
· Use the font style “Times New Roman”/ “Arial” and font size “12”.
· It is advised to compose your document in MS-Word.
· Use black and blue font colors only.
Solution guidelines:
· Every student will work individually and has to write in the form of an analytical
· Give the answer according to question.
· For acquiring the relevant knowledge don’t rely only on handouts but watch the
video lectures and use other reference books also.
Rules for Marking
Please note that your assignment will not be graded or graded as Zero (0) if:
· It has been submitted after due date
· The file you uploaded does not open or is corrupt
· It is in any format other than .doc (MS. Word)
· It is cheated or copied from other students, internet, books, journals etc…

Re: ECO401-Assignment # 2 Spring 2012-Solution Required

PostPosted: Thu Jun 07, 2012 12:36 pm
by abdulsaboor
ECO401Assignment No 2 Solution Due Date 07-06-2012.doc