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State whether you agree or disagree with the below statement:  University of Nottingham (Malaysia’s branch) enjoys economies of scope. 

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State whether you agree or disagree with the below statement:  University of Nottingham (Malaysia’s branch) enjoys economies of scope. 

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In my opinion, I agree with the statement that University of Nottingham (Malaysia’s branch) enjoys economics scope due to the fact that this private university is offering more than one type of study option which is for undergraduate courses, foundation courses, postgraduate courses and related to each other. University of Nottingham can be categorized as multi-product firm which can benefit from economies of scope due to the fact that the total cost of producing more than one good together is less than the total cost of producing these 2 goods separately. So, by offering and producing graduate student from many different level can be more efficient in its productio

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MODERN TESA factory manufactures two types of cars, Model S and Model X. The factory uses a production technology that displays the different combinations of costs.The costs of producing i units of Model S and j units of Model X is denoted by C (i,i) as follows:C (0,20) = 100C (10, 0) = 150C (0,40) = 210C (30, 0) = 320C (5,25) = 240C (15, 75) = 650Does MODERN TESA factory enjoy economics of scale if the factory only specialises in producing only one type of car that is,(a) Model X(b) Model SSupport your answer by providing numerical calculations for (a) and (b).

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MODERN TESA factory manufactures two types of cars, Model S and Model X. The factory uses a production technology that displays the different combinations of costs.The costs of producing i units of Model S and j units of Model X is denoted by C (i,i) as follows:C (0,20) = 100C (10, 0) = 150C (0,40) = 210C (30, 0) = 320C (5,25) = 240C (15, 75) = 650Does MODERN TESA factory enjoy economics of scale if the factory only specialises in producing only one type of car that is,(a) Model X(b) Model SSupport your answer by providing numerical calculations for (a) and (b).

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To determine if the MODERN TESA factory enjoys economies of scale for each car model, we need to examine the cost of producing different quantities of the cars. Economies of scale refer to the situation where the cost per unit of output decreases as the quantity of output increases.

(a) If the factory specializes in producing only Model X, we can examine the cost of producing different quantities of Model X while holding the quantity of Model S constant at zero. From the given information, we have:

C(0,20) = 100
C(30,0) = 320
C(5,25) = 240
Assuming a linear relationship between the costs and the quantity produced, we can calculate the average cost per unit of producing Model X for each level of production:

Average cost for producing 20 units: C(0,20)/20 = 100/20 = 5
Average cost for producing 10 units: (C(0,20) + C(30,0))/30 = (100 + 320)/30 = 14
Average cost for producing 5 units: (C(0,20) + C(5,25))/25 = (100 + 240)/25 = 13.6
Since the average cost per unit increases as the quantity of Model X produced decreases, the factory does not enjoy economies of scale when producing Model X.

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(b) Similarly, if the factory specializes in producing only Model S, we can examine the cost of producing different quantities of Model S while holding the quantity of Model X constant at zero. From the given information, we have:

C(10,0) = 150
C(0,40) = 210
C(15,75) = 650
Again assuming a linear relationship between the costs and the quantity produced, we can calculate the average cost per unit of producing Model S for each level of production:

-Average cost for producing 10 units:
C(10,0)/10 = 150/10 = 15
-Average cost for producing 20 units:
(C(10,0) + C(0,40))/40 = (150 + 210)/40 = 9
-Average cost for producing 15 units:
(C(10,0) + C(15,75))/90 = (150 + 650)/90 = 8.89

Since the average cost per unit  decreases as the quantity of Model S produced increases, the factory enjoys economies of scale when producing Model S.

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Therefore, the MODERN TESA factory enjoys economies of scale when producing Model S but not when producing Model X.

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Briefly describe various types of asset specificity:
(a) site specificity,
(b) human asset specificity,
(c) dedicated asset specificity,
and others (if any), using examples.

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Site specificity in economics refers to the degree to which a particular economic activity or resource is uniquely suited to a particular location or site. This can include factors such as natural resources, transportation infrastructure, labor force characteristics, and local regulations. Site specificity can affect the costs, risks, and competitiveness of economic activities, and is an important consideration in economic development and policy-making. For example, a region that is rich in natural resources may have a comparative advantage in industries that rely on those resources, such as mining or forestry. Similarly, a region with a highly skilled labor force may have a comparative advantage in industries that require specialized knowledge or expertise.

Examples of site specificity in economics:

1.       Natural resources: A region that is rich in natural resources, such as oil or minerals, may have a comparative advantage in industries that rely on those resources, such as mining or oil and gas extraction.

2.       Labor force characteristics: A region with a highly skilled labor force may have a comparative advantage in industries that require specialized knowledge or expertise, such as software development or biotechnology.

3.       Transportation infrastructure: A region with well-developed transportation infrastructure, such as ports, highways, or railroads, may have a comparative advantage in industries that rely on efficient transportation, such as logistics or manufacturing.

4.       Local regulations: Local regulations, such as zoning laws or environmental regulations, can affect the costs and risks associated with economic activities in a particular location. For example, a region with lenient environmental regulations may have a comparative advantage in industries that generate pollution or waste.

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Human asset specificity in economics refers to the degree to which an individual's skills, knowledge, and experience are uniquely suited to a particular job or industry. This can include factors such as specialized training, industry-specific knowledge, and unique relationships with customers or suppliers. Human asset specificity can affect the costs, risks, and competitiveness of firms, and is an important consideration in labor market dynamics and organizational behavior. For example, a highly skilled neurosurgeon has a high degree of human asset specificity, as their skills are specific to their job and are difficult to transfer to other positions or organizations. Similarly, an employee who has developed unique relationships with key stakeholders, such as customers or suppliers, has a high degree of human asset specificity, as these relationships are specific to the employee and are difficult to transfer to other employees or organizations.

Examples of human asset specificity in economics:

1.       Highly skilled professionals: Professionals with specialized skills and knowledge, such as doctors, lawyers, or engineers, have a high degree of human asset specificity, as their skills are specific to their job and are difficult to transfer to other positions or organizations.

2.       Salespeople with established customer relationships: Salespeople who have developed strong relationships with key customers or clients have a high degree of human asset specificity, as these relationships are specific to the salesperson and are difficult to transfer to other employees or organizations.

3.       Industry-specific knowledge: Employees with specialized knowledge of a particular industry or market, such as a marketing executive with experience in the pharmaceutical industry, have a high degree of human asset specificity, as their knowledge is specific to that industry and may not be easily transferable to other industries.

4.       Unique training or certification: Employees who have undergone specialized training or certification programs, such as a certified public accountant (CPA) or a commercial pilot, have a high degree of human asset specificity, as their training is specific to their job and may not be easily transferable to other positions or organizations.

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Dedicated asset specificity in economics refers to the degree to which a particular asset is specialized and dedicated to a specific use or user. This can include assets such as specialized equipment, facilities, or software that are designed and built to meet the specific needs of a particular user or industry. Dedicated asset specificity can affect the costs, risks, and competitiveness of firms, and is an important consideration in investment decisions and organizational behavior. For example, a manufacturing company that invests in specialized equipment for a particular production process has a high degree of dedicated asset specificity, as that equipment is specific to that process and may not be easily transferable to other uses or users. Similarly, a company that invests in customized software to meet its specific needs has a high degree of dedicated asset specificity, as that software is specific to that company and may not be easily transferable to other companies or users.

Examples of dedicated asset specificity:

1.       Specialized manufacturing equipment: Manufacturing equipment, such as assembly line machinery or specialized tools, are often designed and built to meet the specific needs of a particular manufacturing process. These assets require a significant investment of time and resources to design and build, and may not be easily transferable to other manufacturing processes or users.

2.       Customized software: Companies may invest in customized software to meet their specific needs, such as inventory management or customer relationship management (CRM) software. This software is often designed and built to meet the unique requirements of a particular company, and may not be easily transferable to other companies or users.

3.       Specialized facilities: Facilities, such as data centres or research laboratories, are often designed and built to meet the specific needs of a particular user or industry. These assets require a significant investment of time and resources to design and build, and may not be easily transferable to other users or industries.

4.       Dedicated transportation infrastructure: Companies may invest in specialized transportation infrastructure, such as pipelines or railroads, to transport goods to and from their facilities. This infrastructure is often designed and built to meet the unique requirements of a particular company or industry, and may not be easily transferable to other companies or users.

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Excel Sdn Bhd has invested RM100,000 in a new manufacturing facility. The project had to be terminated before any production began. The company may consider three options: (1) to convert the manufacturing facility into an indoor theme park which incurs an additional investment of RM100,000, but is expected to bring a net profit of RM90,000, (2) to repurpose the manufacturing facility for an alternative project, which would require an additional investment of RM40,000, but is expected to generate a net profit of RM35,000, or (3) to sell the manufacturing facility for RM60,000.

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The sunk cost in this scenario, and which option should the company choose? 

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The sunk cost in this scenario, and which option should the company choose? 

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The sunk cost for each scenario are:

a) the sunk cost :
RM 100 000 + RM 100 000  = RM 200 000

b) the sunk cost :
RM 100 000 + RM 40 000 = RM 140 000

c) the sunk cost:
RM 100 000 - RM 60 000 = RM 40 000

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In my opinion, Excel Sdn Bhd will choose option number one. This is because the company will receive a net profit of RM 90 000 which is, that cost will cover it up again the funds that has been invested which is costly RM 200 000.

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The sunk cost in this scenario is the initial investment of RM100,000 in the new manufacturing facility, which cannot be recovered.

Now, let's evaluate the three options:

a) Convert the manufacturing facility into an indoor theme park:
The additional investment required is RM100,000. The net profit expected is RM90,000. Therefore, the total return would be RM90,000 - RM100,000 = -RM10,000. This option would result in a loss.

b) Repurpose the manufacturing facility for an alternative project:
The additional investment required is RM40,000. The net profit expected is RM35,000. Therefore, the total return would be RM35,000 - RM40,000 = -RM5,000. This option would also result in a loss.

C) Sell the manufacturing facility:
The company would receive RM60,000 from selling the facility. This would result in a loss of RM40,000 (the sunk cost of RM100,000 minus the sale price of RM60,000).

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Based on the analysis above, none of the options would result in a positive return for the company. However, option 3 (selling the manufacturing facility) would result in the least amount of loss. Therefore, the company should choose to sell the manufacturing facility.