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Summer
2013
Master
of Business Administration- MBA Semester 1
MB0042
– Managerial Economics - 4 Credits
(Book
ID: B 1625) Assignment (60 marks)
Note:
Answer all questions. Kindly note that answers for 10 marks questions should be
approximately of 400 words. Each question is followed by evaluation scheme.
Q1.
Discuss the practical application of Price elasticity and Income elasticity of demand.
Answer
: Price elasticity of demand :
Price elasticity of
demand (PED or Ed) is a measure used in economics to show the responsiveness,
or elasticity, of the quantity demanded of a good or service to a change in its
price. More precisely, it gives the percentage change in quantity demanded in
response to a one percent change in price (ceteris paribus, i.e. holding
constant all the other determinants of demand, such as income). It was devised
by Alfred Marshall.
Applications of price elasticity :
1.Inelastic demand
for agricultural products helps to explain why bumper crops depress the prices
and total revenues for farmers.
2.Governments look
at elasticity of demand when levying excise taxes. Excise taxes on products with inelastic
demand will raise the most revenue and have the least impact on quantity
demanded for those products.
Q2.
Explain the profit maximisation model in detail.
Answer
: Main propositions of the profit-maximization
model :
The model is based
on the assumption that each firm seeks to maximize its profit given certain
technical and market constraints. The following are the main propositions of
the model.
·
A firm is a producing unit and as such it
converts various inputs into outputs of higher value under a given technique of
production.
·
The basic objective of each firm is to earn
maximum profit.
·
A firm operates under a given market
condition.
·
A firm will select that alternative course
of action which helps to maximize consistent profits
·
A firm makes an attempt to change its
prices, input and output quantity to maximize its profit.
Explanation
of model :
Q3.
Describe the objectives of pricing Policies.
Answer
:
The following objectives are to be considered while fixing the prices of the
product.
1.
Profit maximization in the short term :
The primary
objective of the firm is to maximize its profits. Pricing policy as an
instrument to achieve this objective should be formulated in such a way as to
maximize the sales revenue and profit. Maximum profit refers to the highest
possible of profit. In the short run, a firm not only should be able to recover
its total costs, but also should get excess revenue over costs. This will build
the morale of the firm and instill the spirit of confidence in its operations.
2.
Profit optimization in the long run :
The traditional
profit maximization hypothesis may not prove beneficial in the long run. With
the sole motive of profit making a firm may resort to several kinds of
unethical practices like charging exorbitant prices, follow Monopoly Trade
Practices (MTP)
Q4.
Define Fiscal Policy and the instruments of Fiscal policy.
Answer
: Fiscal policy :
In economics and
political science, fiscal policy is the use of government revenue collection
(taxation) and expenditure (spending) to influence the economy. In economics,
fiscal policy is the use of government expenditure and revenue collection
(taxation) to influence the economy. Fiscal policy can be contrasted with the
other main type of macroeconomic policy, monetary policy, which attempts to
stabilize the economy by controlling interest rates and the money supply.
- Aggregate demand and the level of
economic activity;
- The distribution of income;
Q5.
Explain the kinds and the basis of Price discrimination under monopoly.
Answer
: Kinds of price discrimination :
(1)First
degree price discrimination :
This type of price
discrimination requires the monopoly seller of a good or service to know the
absolute maximum price (or reservation price) that every consumer is willing to
pay. By knowing the reservation price, the seller is able to absorb the entire
consumer's surplus from the consumer and transform it into revenues.
(2)Second
degree price discrimination :
In second degree
price discrimination, price varies according to quantity demanded. Larger
quantities are available at a lower unit price. This is particularly widespread
in sales to industrial customers, where bulk buyers enjoy higher discounts. Additionally to second degree price
discrimination, sellers are not able to differentiate between different types
of consumers.
Q6.
Define the term Business Cycle and also explain the phases of business or
trade
cycle in brief.
Answer
: Business cycle :
The term business
cycle (or economic cycle) refers to economy-wide fluctuations in production,
trade and economic activity in general over several months or years in an
economy organized on free-enterprise principles. The business cycle is the
upward and downward movements of levels of GDP (gross domestic product) and
refers to the period of expansions and contractions in the level of economic
activities (business fluctuations) around its long-term growth trend.
These fluctuations
occur around a long-term growth trend, and typically involve shifts over time
between periods of relatively rapid economic
Phases
of business cycle :
1.
Prosperity Phase :
When there is an
expansion of output, income, employment, prices and profits, there is also a
rise in the standard of living. This period is termed as Prosperity phase.
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get fully solved assignments
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