Ms-9 june 2009
MS-9 June , 2009
MS-9 : Managerial economics
1. a) Explain in brief the opportunity cost principle. Give examples in support of your answer.
b) What is a Production Possibility Curve (PPC) ? Explain how it reflects the opportunity cost principle.
2. Explain briefly the following give examples :
a) Expert opinion
b) Surveys
c) Market experiments
3.One of the decision problems that concerns aproduction process Manager is, which input combination to use'. Keeping this in mind explain with the help of examples, what is the optimal combination of inputs ? You may use the ISO cost
isoquant framework in your answer.
4.Market selection process includes firms entry, then its survival and finally the exit process'. Critically examine the statement in view of barriers to entry with suitable examples from the sector of your choice.
5.Write short notes on any four of the following :
a) Peak Load Pricing
b) Law of Demand
c) Oligopoly
d) Objective of the firm
e) Economies of scope
f) Accounting and Economic Costs.
6. a) Suppose that a linear demand function is given as :
Q=100-5P
Calculate the price elasticity of linear demand function given when P =10 and
when P =8. Also find the slope of the demand curve.
b) .Explain the concept of break-even analysis with the help of examples. What strategic decisions can a manages take on break-even analysis ?
c) What are the limitations of break-even analysis ? Explain .
Ms-9 june 2007
MS-9 June , 2007
MS-9 : Managerial economics
1.Differentiate between 5 types of rnarket using the following characteristics :
(a) Number of independent sellers
b) seller concentration
c) Product differentiation
(d) Conditions of entry
2.Describe the various types of price discrimination. Is price discrimination a characteristic of monopoly or perfect competition ? Explain.
3. (a) Explain and illustrate the various returns to scale.
(b) What is Operating Leverage ? Give examples.
4. Discuss various Demand Forecasting Techniques. Illustrate your answer with examples.
5. Write notes on any four of the following :
(a) Value maximisation
(b) Technical efficiency
(c) Peak load pricing
(d) Equilibrium price
(e) Price bundling
6. Fill in the blanks :
(i) If e > 1, the total revenue curve has a _____slope.
(ii) The value of total revenue reaches _________when elasticity is equal to 1.
(iii) If the demand is _______ do increase in price will result in a decrease of the total revenue.
(iv) Any straight line supply curve passing through the _______ has elasticity equal to one.
Ms-9 june 2008
MS-9 June , 2008
MS-9 : Managerial economics
1. Explain why the average cost curve is U-shaped. The long run average cost curve is always an envelope of short run average cost curves. Discuss.
2. Explain the equilibrium of a firm by using the marginal cost and marginal revenue curves. Why is the firm under perfect competition described as a price taker ?
3. Explain break-even analysis on the basis of its concept, use, drawbacks and advantages.
4. Write notes on the following :
(a) Discounting principle
(b) The Equi-marginal principle
5. Distinguish between the following :
(a) Economies of scale and Economies of scope
(b) Demand curve and Demand schedule
6 . Choose the correct answer.
(i) The responsiveness or sensitivity of a firm's profits to changes in output is measured by a firm's
(a) operating leverage
(b) contribution margin
(c) degree of operating leverage
(d) returns to scale
(ii) The contribution margin per unit is equal to the
(a) price'of a good
(b) difference between total revenue and total cost
(c) difference between price and average total cost
(d) difference between price and average variable cost ,
(iii) Which type of market structure does not typically
have a negatively-sloped market demand curve ?
(a) Monopoly
(b) Perfect competition
(c) Oligopoly
(d) all of the above typically have negatively-stoped market demand curves
(iv) The restaurant industry has a market structure that comes closest to
(a) Monopolistic competition
(b) Oligopoly
(c) Perfect competition
(d) Monopoly
(v) If marginal revenue is greater than marginal cost, increasing output would
(a) reduce profits
(b) increase profits
(c) have no impact on profits
(d) reduce the rate of growth in profits
8. Read the following text and answer the questions that follow :
THEORY AND REAL WORLD MARKETS
The theory of perfect competition describes how firms act in a market structure where (1) there are many buyers and sellers, none of which is large in relation to
total sales or purchases; (21 sellers sell a homogeneous product; (3) buyers and sellers have all relevant information; (a) there is easy entry and exit. These assumptions are closely met in very few real world markets. These assumptions may however be approximated in some real' world markets. In such markets, the number of sellers may not be large enough for every firm to be a price taker, but the firm's control over price may be negligible. The amount of control may be so negligible, in fact, that the firm acts as if it were a perfectly competitive firm.
Similarly, buyers may not have all relevant information concerning price and quality, but they may still have a great deal of information and the information
they do not have may not matter. The products that the firms in the industry sell may not be homogeneous, but the differences may be inconsequential. In short, a market that does not meet the assumptions of perfect competition may nonetheless approximate those assumptions to such a degree that it
behaves as if it were a perfectly competitive market. If so, the theory of perfect competition can be used to predict the market's behaviour.
Questions ;
(a) A price taker does not have the ability to control the price of the product it sells. What does this mean ?
(b) Why is a perfectly competitive firm a price taker ?
(c) The horizontal demand curve for the perfectly competitive firm signifies that it cannot sell any of its products for a price higher than the market equilibrium price. Why can't it ?
(d) Suppose the firms in a real world market do not sell a homogeneous product. Does it necessarily follow that the market is not perfectly competitive ?
Ms-9 june 2010
MS-9 June , 2010
MS-9 : Managerial economics
1. (a) Discuss the Laws of Returns to scale and describe the three stages of returns to
scale.
(b) Explain why Marginal Product (MP) is greater than (less than) Average Product
(AP) when AP is rising (falling).
2. Write notes on any four :
a) Tastes and preferences as determinants of demand.
b) Economies of scale.
(c) Breakeven output level.
d) Equimarginal principle.
e) Kinked demand curve.
3. Explain the concept of law of demand. What causes the market demand curve for a commodity to increase (shifting up) and decrease (shifting down) ? Explain.
4. Write five important characteristics of monopoly. Establish the profit maximising output of a monopoly firm.
5. (a) Discuss the relationship between marginal cost, average cost and total cost.
(b) Explain Profit Maximization under cartel condition. Plot necessary graph.
6. State True or False and justify. Attempt any five :
a) The demand for a commodity is inversely related to price of its substitutes.
b) When income increase, the demand for essential goods increases more than proportionately.
c) Decrease in input prices causes a leftward shift in supply curve.
d) In the long run, there are no variable costs.
e) Retail trade is an example of monopolistic competition.
f) The profit will be maximum where MC = MR in general.
g) In a firm's short-run production function, the firms labour and plant are held
constant while its machinery is allowed to vary.
h) The Law of Diminishing returns is unrealistic because it implies that we could
feed the world from our kitchen garden.
i) Even if there are many buyers, imperfect competition can exist in a market.
j) A monopolist will never produce at the elastic portion of the demand curve.
7. Explain decision under risk. Describe strategic decisions based on decision tree.
MS-9 June , 2009
MS-9 : Managerial economics
1. a) Explain in brief the opportunity cost principle. Give examples in support of your answer.
b) What is a Production Possibility Curve (PPC) ? Explain how it reflects the opportunity cost principle.
2. Explain briefly the following give examples :
a) Expert opinion
b) Surveys
c) Market experiments
3.One of the decision problems that concerns aproduction process Manager is, which input combination to use'. Keeping this in mind explain with the help of examples, what is the optimal combination of inputs ? You may use the ISO cost
isoquant framework in your answer.
4.Market selection process includes firms entry, then its survival and finally the exit process'. Critically examine the statement in view of barriers to entry with suitable examples from the sector of your choice.
5.Write short notes on any four of the following :
a) Peak Load Pricing
b) Law of Demand
c) Oligopoly
d) Objective of the firm
e) Economies of scope
f) Accounting and Economic Costs.
6. a) Suppose that a linear demand function is given as :
Q=100-5P
Calculate the price elasticity of linear demand function given when P =10 and
when P =8. Also find the slope of the demand curve.
b) .Explain the concept of break-even analysis with the help of examples. What strategic decisions can a manages take on break-even analysis ?
c) What are the limitations of break-even analysis ? Explain .
Ms-9 june 2011
MS-9 June , 2011
MS-9 : Managerial economics
1. "The opportunity cost of anything is the return that can be had from the next best
alternative use". Elucidate the statement with reference to the opportunity cost principle
applied in agricultural sector.
2.The demand function is written as Qd= F (Po, Pc, Ps, Yd, T, A, CR, R, E, N, 0) Describe each of this variables separately giving examples.
3. What do you understand by 'Price discrimination' and the various types of price discrimination ? I-low is the optimal quantity to be supplied in different markets determined ? Elucidate your answer with suitable examples.
4. Write short notes on the following :
(a) Kinked demand curve.
(b) Time Series Analysis of Demand Forecasting.
5. Define elasticity of demand. How are the price, income, cross elasticities measured ?
Explain their role in business decisions.
6. Read the following case and answer the questions given at the end.
TAKE THE BULL BY THE HORN
Through its relatively brief history, the Reliance group has specialised in taking gambles, sometimes huge ones. A pattern repeated time and again - such as when it set up capacities for Polyester Staple Fibre (PSF) which was the same size as the domestic market or when it put up a 27 million tonne refinery in Jamnagar, which is close to a third of India's demand for petroleum products.
There's no gamble quite so audacious as the one that's underway. The Rs. 25,000 crore Reliance Infocom project that's currently taking shape aims at no less than a complete remake of India's telecom landscape to emerge as India's number one telecommunications company, ahead of the state-owned behemoth Bharat Sanchar Nigam l td.
It's also an attempt to realign Reliance's revenues and profits - which today originate entirely from manufacturing - with India's economic profile, in which services account for over 40 per cent of GDP. "Reliance's revenues will have to become diversified with
a larger proportion originating from services which would be in keeping with the changing structure of India's economy," says Mukesh Ambani, vice chairman of Reliance
Industries. Rs. 8000 crore will be invested over a three - year period. As of now, it's full steam ahead for Reliance's Infocom plans. As it had done earlier in oil and gas. Reliance plans to emerge as an integrated player, focusing on the entire range of telecom services
ranging from high - speed internet access for business and consumers, call centres, data centres, cellular phone services and domestic and international long distance telephony. Apart from the gamut of telecom services, Reliance's integration plans are in one respect unique in the telecom industry. If senior group officials are to be believed, the company has plans to assemble cellular phones and set-top boxes.
At the core of the Infocom project is a 115,000 km fibre optic backbone covering 115 cities across 12 States, accounting for over 50 per of India's GDP. The company plans to become what the industry jargon refers to as a carriers' carrier, where it hires out infrastructure to other telecom operations. Here Reliance, along with the Bharti group, has obtained a licence for providing domestic long-distance services. In fact, these are the only two companies to do so. The total domestic long-distance market is worth Rs. 6,000 crore. Of this, the market available to the long distance operator is likely to be Rs. 2,400 crore, according to a December 2000 Merrill Lynch report. This is based on a 30 : 40 : 30 revenue share between the originator, the carrier and the last-mile access provider. However, Reliance would hope for a larger share since it plans to fill all the three roles. Merrill Lynch estimates that the domestic long-distance revenues accruing to the carrier would amount to Rs. 2760 crore in 2002 - 03, of which Reliance is expected to garner 20 per cent - or Rs. 620 crore.
As part of its plans to enter international long-distance telecommunication, Reliance has already submitted an expression of interest for international long-distance operator VSNL. The total international long-distance market in India right now is Rs. 4,900 crore.
Reliance's own estimates for revenue and profitability have not been made publicly available. However, internal estimates reportedly project revenues of Rs. 30,000 crore, which is roughly a third of the total telecommunication market of around Rs. 1,00,000 crore estimated for fiscal year 2004 - 05. The annual total telecommunications market is around Rs. 42,000 crore. These estimates are of course based on the assumptions of a rapid take-off in traffic, particularly data traffic. Check out some figures: out of the 30 million households that have an income over Rs. 4000, an estimated 20 million are in the urban market and 10 million in the rural market. Out of the urban people, 13 million already have fixed-line connections. And out of the 10 million rural customers, 6.5 million already have fixed lines.
In the light of the above: "what kind of growth can one really expect" for the telecommunication sector in India as such and Reliance lnfocom in particular ?
Questions :
(a) Is there such a market in India for all the huge plans that they have ?
(b) Can you support it as a case of economies of scope ?
(c) Does it not lend to monopolistic conditions ? Give reasons.
Ms-9 Dec 2007
MS-9 Dec, 2007
MS-9 : Managerial economics
1. What is the basic objective of a firm ? Distinguish between 'Accounting Profit and 'Economic Profit' with the help of an illustration.
2. What do you understand by demand forecasting while describing the regression method of demand forecasting explain why it is important for the firm to forecast demand
3. Distinguish between the following with the help of illustrations :
(a) Fixed costs and Variable costs
(b) Short'run costs and Long-run costs
(c) Direct costs and Indirect costs
(d) Total cost, Average cost and Marginal cost
4. (a) Differentiate between Monopoly and Monopolistic competition giving examples
(b) Explain why profit is maximum at a level where MC = MR. Is profit always maximum when MC =MR ? Comment.
5. (a) What are the different types of statistical analyses used in the estimation of production function ? Explain briefly with the help of examples. Discuss the limitations of different types of statistical analysis.
(b) Briefly explain how the Cobb Douglas production function can be used to determine returns to scale.
6. (a) Which of the following commodities has most inelastic demand ? Give reasohs for your answer.
(i) Soap
(ii) Salt
(iii) Penicillin
(iv) Ice-cream
(v) Cigarettes
(b) Suppose the demand function of a product is given as
Q =500 - 5P. Find the profit maximising price when
i) MC:=0
ii) MC=20
7. Suppose you are a sales manager of an organization. Explain how does the analysis of demand contribute to business decision making, in the light of the responsibilities of a sales manager.
Ms-9 Dec 2008
MS-9 Dec, 2008
MS-9 : Managerial economics
1. Explain the concept of price elasticity of demand and the relationship between price elasticity, total revenue and marginal revenue
2. Show graphical derivation of MP and AP curves from the total product function. Show also the three stages of production. What economic purpose do the stages
of production serve ?
3. Explain with examples economies and diseconomies of scale. How do economies and diseconomies of scale determine the shape of the LAC ?
4. Write notes on the following :
(a) The Equi Marginal Principle
(b) Elasticity of Substitution
(c) Linear Cost function
(d) Types of markets
5. (a) Under perfect competition average revenue equals average cost in the long run. Why do firms produce under such a condition ?
(b) A monopolist earns super normal profits even in the long run. Discuss
6. (a) Write True or False :
(i) In a firm's short-run production function, the firm's labour and plant are held
constant while its machinery is allowed to vary.
(ii) The law of diminishing returns is unrealistic because it implies that we could feed the world from our back garden.
(iii) The least-cost input combination producing a given level of output always be achieved in the short run.
(iv) The law of eventually diminishing returns describes a short run situation in which labour varies but fixed factors do not.
(v) The greater the cost of storing a good, the greater will be the gap in its price now and 2 years later.
(vi) Scale is a short-run concept.
(vii) When an input's average product exceeds its marginal product, average product is increasing.
(viii) The long-run average cost curve slopes downward over a range of output where a firm experiences a decreasing returns to scale.
(ix) Because consumers like variety, we cannot conclude that monopolistic competition is inefficient.
(x) The theory of the kinked demand curve does not predict the price where the kink will occur.
(b) The market demand function for a product sold by a monopolist is given below :
QD=2500-10P
The monopolist marginal cost function is :
MC=10+Q
Calculate the equilibrium price and quantity
Case study IBM
7. Read the following case and answer the questions given at the end.
LONG-RUN COSTS AT IBM
(LONG RUN COST FUNCTION)
The IBM Corporation is a leading manufacturer of electronic computers. Based on its internal memoranda, IBM's long-run total cost of producing various quantities of its Pisces (370/168) machines was as shown below :
For output levels in the relevant range, the equation
for this total cost function is
C = 28,303,800 + 460,800 Q,
where C is total cost (in dollars) and Q is the number of machines.
A) If the entire market for this type of machine is 1,000 machines, and if all firms have the same long-run total cost function, to what extent would a firm with 50 percent of the market have a cost advantage over a firm with 20 percent of the market ?
b) What is the long-run marginal cost of producing such a machine ? Does marginal cost depend on output ?
c) Do there appear to be economies of scale ?
d) The data presented above are forecasts of costs based largely on engineering data, not on historical record of actual costs. Why would IBM make such forecasts ? What factors might result in errors in these forecasts ?
Ms-9 Dec 2009
MS-9 Dec, 2009
MS-9 : Managerial economics
1. Distinguish between profit maximisation and value maximisation giving examples.
2 (a) Briefly explain the concept of price elasticity of demand giving suitable examples.
(b) What are the determinants of price elasticity ? Explain giving examples.
3. Write short notes on the following giving suitable examples :
a) Breakeven output level
b) Profit contribution analysis
(c) Operating leverage
4. Critically comment on the factors which determine the nature of competition giving suitable examples.
5 (a) Why will managers prefer to operate in a cartel type environment as opposed to
competition ? Explain.
(b) Sustaining collusion is difficult for firms. Explain why, with reference to the prisoners dilemma.
6.You are given to understand that the existing firm in a market drives 80% of its revenues from 20% of its customers. Your boss wants you to develop a strategy to enter this market to compete with the existing firm (incumbent). Your answer should focus on :
a)How you would target existing customers ?
b) How you would seek to attract new customers ?
c) It is possible that the incumbent will also change his strategy following your decision
to enter. How according to you will the incumbent react ?
d) What will be your counter strategy to combat the incumbent ?
7. What do you understand by 'laws of production ? Explain the production function with one variable input highlighting the law of diminishing marginal returns and the stages of production
Ms-9 Dec 2010
MS-9 Dec, 2010
MS-9 : Managerial economics
1. (a) Discuss the relation between the average product, marginal product and total product in the short run.
(b) How do these support the application of the law of variable proportion to the firm ? Give example.
2. (a) Why is the long run average cost curve called an "envelope curve" ?
(b) Business Managers say that the firm plans in the long run and operates in the short run. Elucidate.
3. (a) Identify the differences between price elasticity and income elasticity. Illustrate with the help of examples.
(b) Discuss the determinants of price elasticity. Give examples.
4. Write notes on any four of the following :
(a) Opportunity cost
(b) Incremental concept
(c) Barriers to entry
(d) Effect of advertisement on demand of a product
(e) Delphi technique
5. Write five important characteristics of perfect competition. Establish the profit 20
maximising output of a perfectly competitive firm in the short run.
6. State True or False and give reasons :
(a) If total profit is at a maximum, marginal profit is zero.
(b) If a good is normal, then both the substitution effect and the income effect cause quantity demanded to change in the same direction.
(c) If price elasticity of demand for a firm's output becomes more elastic, then the firm's marginal revenue will increase.
(d) If the price elasticity of demand for a firm's output is inelastic then the firm could increase its revenue by reducing price.
(e) Economies of scale is a short run concept.
7.Case study questions
(a) What is the difference in a shift in the demand curve and a movement along the
demand curve ?
(b) Discuss factors which cause the demand curve to shift upwards ?
(d) Will "price" and "income" have a similar effect on demand of vegetables ?
Explain.
Ms-9 Dec 2011
MS-9 Dec, 2011
MS-9 : Managerial economics
1. One of the most significant business and economic trends of the late twentieth century
is the rise of 'global' or 'stateless'. Corporation critically comment on the statement taking examples from the real world firms.
2. (a) Discuss the concept and features of monopolistic competition giving examples.
(b) Explain which of the following markets could be considered monopolistically competitive. Give reasons for your answer.
(i) Automobiles
(ii) Restaurants
3. (a) Explain the concept of economies of scale.
(b) What are economies of scope ? How do they differ from economies of scale ?
4. For a demand function
P = 200 — 50Q
or Q = 400 — 2P
Calculate the point price elasticities when
(a) P =20 and Q = 180
(b) P = 80 and Q = 120
and determine whether the demand is elastic or inelastic.
5. (a) Discuss the marketing approach to a Demand measurement.
(b) Outline the trend projection method of demand forecasting with the help of an
illustration.
6. Read the following case problem and answer the questions given at the end.
HIGHWAY BLUES
Ratan Sethi opened a petrol-pump cum retail store on Delhi- Agra Highway, about two-hour drive from Delhi. His store sells typical items needed by highway travellers like fast foods, cold drink, chocolates, hot coffee, children's toys etc. He charges higher price compared to the sellers in Delhi, yet he is able to maintain brisk sale-particularly of "Yours' Special Pack" (YSP) consisting of soft drink in a disposable plastic bottle and a packet of light snacks. The Highway travellers prefer to stop at his store because, while their cars wait for petrol-filling they in the meantime can enjoy Your's Special Pack (and, in some cases would help themselves with some other items in the store).
Each year he could substantially enhance his sales by providing Special Summer Price
on YSP which is almost half of its regular price. Last year while returning from Delhi, Ratan found that a new, big and modern grocery shop has come up 15 kms from Delhi on the National Highway. It has affected his sales but only marginally. But last month another large convenience store has opened just , 5 km. away from his store. He knows that the challenge has come meet to his doorsteps and he expects to be adversely affected by the existence of these two stores.
He needs to meet this challenges and decides to use the pricing strategy which he has been using quite effectively till recently. He now permanently reduces the price of YSP to half of its existing price. But at the end of the year Ratan finds that his sales in general and of YSP in particular had declined by 20 per cent.
(a) Where has Ratan sethi gone wrong ?
(b) If he was a managerial economist, how do you think he would have handled the situation ?
Q 7. Break - even production of a firm is 5,000 units, its fixed cost is Rs. 50,000; the variable cost per unit Rs. 25. Find out the price of the product. How much the firm should produce to earn profit of Rs. 25,000 ?
