ECON5026 Mid semester test Practice questions Part BMatlab

Java Python ECON5026 Mid semester test

Practice questions Part B

Sample Descriptive questions

Suppose you have been investing in a bundle of selected stocks (Y). You are aware of your expected

returns [E(Y)] and investment volatility measured by standard deviation (σ) such that E(y) =

$1000 + σ . For any given value of σ  = $500, explain your certainty equivalent and risk premium? (Use an appropriate fully labelled diagram in your answer).                                                  [6 Marks]

Consider that a firm embarks on a month-long sales campaign with flexible pricing options for LED televisions and sound systems. There are four customers with valuations for each of these products as indicated in the table below:

Customer	LED Televisions	Sound System
Wang	1300 ECON5026 Mid semester test Practice questions Part BMatlab	500
John	1000	1000
Khan	500	1200
Jessica	1600	1000

The marginal and average cost of making a LED television is $900, and the marginal and average cost of making a sound system is $600.

Explain the optimal pricing strategy of the firm if:

(i) there is no budling

(ii) bundling of the two products

(iii)  a mix or optional bundling.

How much profit will the company make in each case?  (Show your work detail