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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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