MS-09 Managerial Economics

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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: You use discounting principles to determine the value of something in the future, compared to its present day value. The reasoning behind the discounting principle is that an amount of money you have in your hands today is worth more than money you have the potential for having at some future time. You would rather have $100 today than wait until tomorrow for the same amount of money.

Discounting Principle Defined

The discounting principle requires you to look at the

2. With reference to the marketing approach of demand measurement explain any two important sources of data used in demand forecasting.

Answer: The first question which arises is, what is the difference between demand estimation and demand forecasting? The answer is that estimation attempts to quantify the links between the level of demand and the variables which determine it. Forecasting, on the other hand, attempts to predict the overall level of future demand rather than looking at specific linkages. For this reason the set of techniques used may differ, although there will be some overlap  between the two. In general, an estimation technique can be used to forecast demand but a forecasting technique cannot be used to estimate demand. A manager who wishes to know how high demand is likely to be in two years’ time might use a forecasting technique. A manager who

3. How are Isoquants different from Isocost? Illustrate using graphs.

Answer: isoquant

In economics, an isoquant (derived from quantity and the Greek word is, meaning equal) is a contour line drawn through the set of points at which the same quantity of output is produced while changing the quantities of two or more inputs. While an indifference curve mapping helps to solve the utility-maximizing problem of consumers, the is quant mapping deals with the cost-minimization problem of producers. Isoquants are typically drawn on capital-labor graphs, showing the technological tradeoff between capital and labor in the production

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: An analytical tool frequently employed by managerial economists is the breakeven chart, an important application of cost functions. The breakeven chart illustrates at what level of output in the short run, the total revenue just covers total costs. Generally, a breakeven chart assumes that the firm’s average variable costs are constant in the relevant output range; hence, the firm’s total cost function is assumed to be a straight line. Since variable cost is constant, the marginal cost is also constant and equals to average variable cost.

5.Describe how oligopolistic competition exists in the real world giving examples from FMCG Companies.

Answer : OLIGOPOLY:

A market structure characterized by a small number of large firms that dominate the market, selling either identical or differentiated products, with significant barriers to entry into the industry. This is one of four basic market structures. The other three are perfect competition, monopoly, and monopolistic competition. Oligopoly dominates the

6. (A) Product Differentiation, 

Answer: Today, many companies offer the same products and services. It may seem pointless to try to compete in an environment in which numerous other companies are already offering the same product or service you wish to sell. However, new companies often do come into the market place and successfully sell products and services that already existed in that market place. They are able to compete because they use product differentiation.

 (b)  Equi - Marginal Principle  and

Answer : The Equimarginal Principle in Economics states that different courses of action should be pursued up to the point where all the courses give equal marginal benefit per unit of cost. It claims that a rational decision-maker would certainly allocate or hire resources in a fashion that the ratio of marginal returns and marginal costs of various uses of a provided resource or of various resources in a given use is the same.

Economist H. H. Gossen posited the two basic laws of utility, the Equi-marginal Principle and the Law of Diminishing marginal returns. Gossen’s

c)      The Price Elasticity of Demand

The Price Elasticity of Demand (commonly known as just price elasticity) measures the rate of response of quantity demanded due to a price change. The formula for the Price Elasticity of Demand (PEoD) is:

PEoD = (% Change in Quantity Demanded)/(% Change in Price)

Ø  Calculating the Price Elasticity of Demand

You may be asked the question "Given

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