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ASSIGNMENT
Course Code : MS - 09
Course Title : Managerial Economics
Assignment Code : MS-
09/TMA/SEM-I/2014
Coverage : All Blocks
Note : Attempt all the
questions and submit this assignment on or before 30th April , 2014 to the
coordinator of your study centre.
1.
What is opportunity cost? Explain with
the help of an example, why assumption of constant opportunity cost is very
unrealistic?
Ans
: Opportunity cost :
In microeconomic
theory, 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, and has been described as expressing "the basic relationship
between scarcity and choice". The notion of opportunity cost plays a
crucial part in ensuring that scarce
2.
(a)
Explain law of demand with the help of a demand schedule and demand
curve.
Ans
: Meaning of demand :-
In ordinary
language the word demand means desire . But in economics demand means desire
backed up by the enough money to pay for the good. Only desire can not be
called demand.
There is also
functional relationship between price and demand. Second point is that demand
is always per unit of time.
Law
of demand :-
" Other
things remaining the same when the price of any commodity increases its demand
falls and when price falls its demand increases."
(b)
Calculate point elasticity of demand for demand function Q=10-2p for decrease
in price from Rs 3 to Rs 2
Ans
: Point elasticity is the price elasticity of
demand at a specific point on the demand curve instead of over a range of it.
It uses the same formula as the general price elasticity of demand measure, but
we can take information from the demand equation to solve for the “change in”
values instead of actually calculating a change given two points. Here is the process to find the point
elasticity of demand formula:
Point Price
Elasticity of Demand = (% change in Quantity)/(% change in Price)
Point Price
Elasticity of Demand = (∆Q/Q)/(∆P/P)
Point Price
Elasticity of Demand = (P/Q)(∆Q/∆P)
3. “Cost function expresses the relationship
between the cost and its determinants.” Discuss this statement giving examples
from any firm of your choice.
Ans
: Cost function :
In Economics we
usually talk about two different types of costs, explicit and implicit.
Implicit costs incorporate all opportunity costs and rate of returns into your
cost function. We have already covered these types of costs in Macroeconomics.
We will come back to them later in this course, but for now we are going to
focus on Explicit Costs. These are costs that must be paid; anything that you
actually receive a bill for is an explicit
4.
“A characteristic of oligopolistic market is that, once the general price level
is established it tends to remain fixed for an extended period of time.”
Discuss the economic rationale underlying this phenomenon.
Ans
: An oligopoly is a market form in which a
market or industry is dominated by a small number of sellers (oligopolists).
Oligopolies can result from various forms of collusion which reduce competition
and lead to higher costs for consumers.
With few
sellers, each oligopolist is likely to be aware of the actions of the others.
The decisions of one firm therefore influence and are influenced by the
decisions of other firms.[citation needed] Strategic planning by oligopolists
needs to take into account the likely responses of the other market
participants.
5.
In any firm of your choice, try to find the effect of change in demand and
change in supply on price and quantity of product.
Ans
: Effect of change in demand and change
in supply on price and quantity of product :
Shift
in Demand
When there is a
change of one of the factors of demand- like the price of the product and
related goods, consumer preferences, or income- there is a corresponding change
in the demand curve. For instance, if someone's income grows, then his demand
for goods will increase, shifting his demand curve to the right. This will lead
to a higher quantity being consumed at a higher price, ceteris paribus.
Conversely, there can be a negative effect that shifts the supply curve to the
left where a lower quantity is consumed at a lower price, ceteris paribus. This
can occur when the price of substitutes falls or consumers begin to lose their
taste for the product.
Shift
in Supply
6.Write
Short Notes on the following:
(a)
Value Maximization
(b)
Envelope Curve
(c)
Peak Load Pricing
Ans
: (a) Value Maximization :
Firm value
maximization is a business term. It is the practices of a firm to make the most
of their finances to maximize profits. The profits are either put back into the
business or given to stock holders or owners. Value maximization and
stakeholder theory are two methods of determining the goals of a business.
Under strict value maximization, managers only consider whether a decision
increases the profits of the business without considering other community
members. Under stakeholder theory, managers consider how a decision affects
other residents of the community . Some theorists see value maximization as
always conflicting with stakeholder theory. The use of stakeholder theory
implies that
(b)
Envelope Curve :
The long run
average cost curve is derived from a series of short run average cost curves
and so is often described as the envelope curve. If a firm is producing in the
most efficient way possible in the long run, but they then want to expand, they
will have to expand along a short run average cost curve as they will be
limited by their fixed factors. However, in the long run they can get more of
the fixed factors and so will move back down to the long run average cost
curve. This is why the LRAC is made up of a series of SRAC curves.
Since LRAC
envelopes all short run curves, hence it is called Envelope curve. LRAC can
never cut SRAC but it will be tangential to each SRAC at
(c)
Peak Load Pricing :
Peak-load
pricing is a pricing technique applied to public goods, which is a particular
case of a Lindahl equilibrium. Instead of different demands for the same public
good, we consider the demands for a public good in different periods of the
day, month or year, then finding the optimal capacity (quantity supplied) and,
afterwards, the optimal peak-load prices.
This has
particular applications in public goods such as public urban transportation,
where day demand (peak period) is usually much higher than night demand
(off-peak period). By subtracting the marginal costs of operation from the
Dear students get fully solved
assignments
Send your semester &
Specialization name to our mail id :
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or
Call us at : 08263069601
(Prefer mailing. Call in emergency )
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