Malaysia Airlines

Answer the following questions below in 1200 words or fewer using diagrams to illustrate your answers.
1. A consumer splits their income equally between two goods. If the price of one good increase by 10% and their income increases by 5%, show that the consumer’s optimal consumption bundle will change despite them being able to afford their original bundle.

2. When estimating a demand function, explain why fitting a line of best fit through observed price and quantity combinations over time is not likely to yield good estimates.

3. If a firm uses only capital and labour, show why the cost minimising combination of inputs sets: .

Task B – ( 2400 words)
In an essay of 2400 words evaluate the pricing strategies of Malaysia Airline and it employs for its core product/business in order to increase its market share and profitability within its industry (at the national level).
CASE STUDY “Malaysia Airline: Flight from Malaysia – United State of America”.
This section must be written as an essay. You must first demonstrate that the company has some power to set its own price (that is, it has some degree of market power) – e.g. what is the structure of the industry it operates in? What is its market share for the product? How concentrated is the industry?
You must then use economic analysis to evaluate the pricing strategies your firm has adopted for its main product(s). Make clear comparisons between the predictions of the economic theories and the empirical evidence for your firm. Are the strategies adopted by the firm optimal? If so, why? If not, why not? How might they be improved?
Follow this structure
• INTRODUCTION
• OBJECTIVE
• JUSTIFICATION OF THE COMPANY
• THE INDUSTRY ANALYSIS
• MARKET STRUCTURE
• MARKET POWER
• MARKET SHARE
• ANALYSIS OF THE PRICING STRATEGY
• DESCRIPTION
• ALTERNATIVE PRICING STRATEGIES
• BUNDLE PRICING
• PREMIUM PRICING
• COMPETITION PRICING
• THE SKIMMING STRATEGY
• RECOMMENDATIONS
• CONCLUSION
Key points:
• Consumer behaviour and rational choice
• Estimating demand
• Production theory
• Monopoly power and cost plus pricing
• Pricing strategies
References:
Allen, WB, N. Doherty, K, Weigelt and E. Mansfield (2013) Managerial Economics: Theory, applications and cases, 8th Edition. New York: Norton.
Baye, M. (2010) Managerial Economics and Business Strategy, 7th Edition. McGraw-Hill
Keat, P., and P. Young (2009) Managerial Economics, 6th edition. FT/Prentice Hall.
Sloman, J., K. Hinde and D. Garrett (2010) Economics for Business, 5th Edition. Harlow: FT/Prentice Hall.