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Summer-2013
Master of
Business Administration- MBA Semester 1
MB0042–Managerial
Economics-4 Credits
(Book ID: B1625)
Assignment
(60 Marks)
Note: Answer
all questions (with 300 to 400 words each) must be written within 6-8 pages.
Each Question carries 10 marks 6 X 10=60
Q1. Discuss the practical application
of Price elasticity and Income elasticity of demand.
Answer. Price Elasticity is the degree to which customers
respond to price changes. Price Elasticity is if a small change in price is
accompanied by a large change in quantity demanded, the product is said to be
elastic (or responsive to price changes). A product is inelastic if a large
change in price is accompanied by a small amount of change in demand.
Q2. Explain the profit maximization
model in detail.
Answer. A process that companies undergo to determine
the best output and price levels in order to maximize its return. The company
will usually adjust influential factors such as production costs, sale prices,
and output levels as a way of reaching its profit goal. There are two main
profit maximization methods used, and they are Marginal Cost-Marginal Revenue Method and Total Cost-Total Revenue
Method. Profit maximization is a good thing for a company, but can be a bad
thing for consumers if the company starts to use cheaper products or decides to
raise prices.
Q3. Describe the objectives of
pricing Policies.
Answer. Pricing Policies
A detailed
study of the market structure gives us information about the way in which
prices are determined under different market conditions. However, in reality, a
firm adopts different policies and methods to fix the price of its products. Pricing
policy refers to the policy of setting the price of the product or products and
services by the management after taking into account of various internal and
external factors, forces and its own business objectives. Pricing is considered
as one of the basic and central problems of economic theory in a modern economy.
Q4. Define Fiscal Policy and the
instruments of Fiscal policy.
Answer. Fiscal Policy:
Government's
revenue (taxation) and spending policy designed to (1) counter economic cycles
in order to achieve lower unemployment, (2) achieve low or no inflation, and
(3) achieve sustained but controllable economic growth. In a recession,
governments stimulate the economy with deficit spending (expenditure exceeds
revenue). During period of expansion, they restrain a fast growing economy with
higher taxes and aim for a surplus (revenue exceeds expenditure). Fiscal
policies are based on the concepts of the UK economist John Maynard
Q5. Explain the kinds and the basis
of Price discrimination under monopoly.
Answer. Price discrimination
A monopolist
may be able to engage in a policy of price discrimination. This occurs when a
firm charges a different price to different groups of consumers for an
identical good or service, for reasons not associated with the costs of
production.
The practice
on the part of the monopolist to sell the identical goods at the same time to
different buyers at different prices when the price difference is not justified
by difference in costs in called price discrimination. In the words of Mrs.
Joan Robinson, “Price discrimination is
Q6. Define the term Business Cycle
and also explain the phases of business or trade cycle in brief.
Answer. The business cycle is the periodic but irregular
up-and-down movements in economic activity, measured by fluctuations in real
GDP and other macroeconomic variables. If you're looking for information on how
various economic indicators and their relationship to the business cycle,
please see A Beginner's Guide to Economic Indicators. Perkin and Bade goes on to explain: A business cycle is not a
regular, predictable, or repeating phenomenon like the swing of the pendulum of
a clock. Its timing is random and, to a large degrees, unpredictable.
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