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ASSIGNMENT
Course Code : MS-09
Course Title : Managerial
Economics
1. Explain the discounting
principle. Using the discounting principle calculate the present value of an
annuity of five years at Rs. 500 payments made at the end of each of the next
five years at 10% interest.
Answer : Discounting is a financial mechanism in which a debtor obtains the
right to delay payments to a creditor, for a defined period of time, in
exchange for a charge or fee.[1] Essentially, the party that owes money in the
present purchases the right to delay the payment until some future date.[2] The
discount, or charge, is simply the difference between the original amount owed
in the present and the amount that has to be paid in the future to settle the
debt.
The discount is usually associated with a discount rate, which is
also called the discount yield.[1][1][2][3] The discount yield is simply the
proportional share of the initial amount owed (initial liability) that must be
paid to delay payment for 1 year.
2. With reference to the
marketing approach of demand measurement explain any two important sources of
data used in demand forecasting.
Answer : EVALUATING THE
ACCURACY OF THE REGRESSION EQUATION - REGRESSION STATISTICS
Once the parameters have been estimated, the strength of the
relationship between the dependent variable and the independent variables can
be measured in two ways. The first uses a measure called the coefficient of
determination, denoted as R2, to measure how well the overall equation explains
changes in the dependent variable. The second measure uses the t-statistic to
test the strength of the relationship between an independent variable and the
dependent variable.Testing Overall Explanatory Power : Define the squared
deviation of any Yi from the mean of Y [i.e., (Yi–Y)2] as the variation in Y.
The total variation is found by
3. How are Isoquants different
from Isocost? Illustrate using graphs.
Answer : In economics an isocost line shows all combinations of inputs which
cost the same total amount. Although similar to the budget constraint in
consumer theory, the use of the isocost line pertains to cost-minimization in
production, as opposed to utility-maximization. For the two production inputs
labour and capital, with fixed unit costs of the inputs, the equation of the
isocost line is where w represents the wage rate of labour, r represents the rental
rate of capital, K is the amount of capital used, L is the amount of labour
used, and C is the total cost of acquiring those quantities of the two inputs.
4 An analytical tool
frequently employed by managerial economists is the break even chart, an important
application of cost functions.” Discuss this statement giving examples from any
firm.
Answer : The distinction between fixed and variable costs is of great
significance to the business manager. Variable costs are those costs, which the
business manager can control or alter in the short run by changing levels of
production. On the other hand, fixed costs are clearly beyond business
manager’s control, such costs are incurred in the short run and must be paid
regardless of output. Total Costs Three concepts of total cost in the short run
must be considered: total fixed cost (TFC), total variable cost (TVC), and
total cost (TC). Total fixed costs are the total costs per period of time
incurred by the firm for fixed inputs. Since the amount of the fixed inputs is
fixed, the total fixed cost will be the same regardless of the firm’s output
rate. Table below shows the costs of a firming the short run. According to this
table, the firm’s total fixed costs are Rs. 100.The
5. Describe how
oligopolistic competition exists in the real world giving examples from FMCG
Companies.
Answer : OLIGOPOLY: A situation where there are only a few sellers in a
particular economy who control a particular commodity. They can, therefore, influence prices and
affect the competition. In India, an
example of this would be mobile telephony - There are only a few operators,
examples of which are: Aortal, Idea, BSNL, Reliance
PERFECT COMPETITION: This is an economic situation that really doesn't exist, in which a
bunch of conditions are met, not the least of which are free entry and exit
from a market, tons of sellers selling the exact same product, and tons of
buyers
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