MS-09 Managerial Economics

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ASSIGNMENT

Course Code                                                      :                                               MS-09
Course Title                                                       :                                               Managerial Economics
Assignment Code                                            :                                               MS-09/TMA/SEM-I/2015
Coverage                                                             :                                               All Blocks

Note : Attempt all the questions and submit this assignment on or before 30th April, 2015 to the coordinator of your study centre.

Q. 1. “The opportunity cost of anything is the return that can be had from the next best alternative use.” Explain this statement with reference to gun-versus-butter debate.

Answer:The opportunity cost of a choice is the value of the best alternative forgone, in a situation in which a choice needs to be made between several mutually exclusive alternatives given limited resources. Assuming the best choice is made, it is the "cost" incurred by not enjoying the benefit that would be had by taking the second best choice available. The New Oxford American Dictionary defines it as "the loss of potential gain from other alternatives when one alternative is chosen". Opportunity cost is a key concept in economics,



Q. 2. Describe each of the variables of demand function separately with the help of examples.
Answer:Economists are interested in examining types of relationships. For example an economist may look at the amount of money a person earns and the amount that person chooses to spend. This is a consumption relationship or function. As another example an economist may look at the amount of money a business firm has and the amount it chooses to spend on new equipment. This is an investment relationship or investment function




Q. 3. Break-even production of a firm is 4,000 units, its total fixed cost is Rs. 40,000 and the variable cost per unit is Rs. 20.
(a) Find out the price of the product.
(b) What should be the firm’s output to earn profit contribution of Rs. 20,000?
Answer: CVP Analysis uses Variable Costing concepts. We will divide ALL costs into one of two categories: Variable or Fixed. We refer to this as "cost behavior." In CVP Analysis cost behavior will be discussed on BOTH a total



Q. 4. “Price discrimination refers to the situation where a monopoly firm charges different prices for exactly the same product. Explain giving an example.
Answer: Price discrimination refers to the situation where a monopoly firm charges different prices for exactly the same product. The monopoly firm (a single seller in the market) can discriminate between different buyers by charging them different prices because it has the power to control price by changing its output. The buyers of its product have no choice but to buy from it as the product has no close substitutes.



Q. 5. “The increase in competition has not only increased the market size for telecom, but has also resulted in substantial tariff declines.” Elaborate this statement with the help of an example.

Answer: The phenomenal growth of the Indian telecom industry during the past few years has been backed by a confluence of factors such as progressive regulatory regime, favourable demographic features and conducive business environment. The size of the telecom industry in terms of subscriber base has grown by more than 5 times in a span of last five years. The subscriber base increased from 77.64 mn by end of FY04 to 429.72 mn by end of FY09, at an annual average growth of 41%. The robust monthly net additions to the subscriber base are an indication of the exponential growth in the telecom sector. Around 14.25 mn net




Q. 6. Write short notes on the following:

(a) The Invisible Hand:In economics, the invisible hand is a metaphor used by Adam Smith to describe unintended social benefits resulting from individual actions. The phrase is employed by Smith with respect to income distribution (1759) and production (1776). The exact phrase is used just three times in Smith's writings, but has come to capture his notion that individuals' efforts to pursue their own interest may frequently benefit society more than if their actions were directly intending to benefit society. Smith may have come up with the two meanings of the phrase from Richard Cantillon who developed both economic applications in his model of the isolated estate.



(b) Envelope Curve: In geometry, an envelope of a family of curves in the plane is a curve that is tangent to each member of the family at some point. Classically, a point on the envelope can be thought of as the intersection of two "adjacent" curves, meaning the limit of intersections of nearby curves. This idea can be generalized to an envelope of surfaces in space, and so on to higher dimensions.


(c) Economies of Scope: Economies of scope are "efficiencies wrought by variety, not volume" (the latter concept is "economies of scale"). For example, many corporate diversification plans assume that economies of scope will be achieved.It is an economic theory stating that the average total cost of production decreases as a result
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