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MB0042 Managerial Economics
“Most of the firms spend considerable amounts of money on advertisement”.
Explain advertising elasticity of demand and its practical applications in this context.
Answer: Advertising or promotional elasticity of demand
Most of the firms, in the present marketing conditions, spend considerable amounts of money on advertisement and other such sales promotional activities with the object of promoting its sales. Advertising elasticity refers to the responsiveness of demand or sales to change in advertising or other promotional expenses. The formula to calculate the advertising elasticity is as follows:
Explain production function in detail.
Answer: Production function
The entire theory of production centres revolves around the concept of production function.
A “production function” expresses the technological or engineering relationship between
physical quantity of inputs employed and physical quantity of outputs obtained by a firm. It specifies a flow of output resulting from a flow of inputs during a specified period of time. It may be in the form of a table, a graph or an equation specifying maximum output rate from a given amount of inputs used. 3
Explain Marris’ Gro
wth Maximisation Model in detail.
Profit-maximisation is a traditional objective of a firm. Sales maximisation objective is explained by Prof. Baumol. On similar lines, Prof. Marris has developed an alternative growth maximisation model. It is commonly seen that each firm aims at maximising its growth rate, because this goal would answer many of the objectives of a firm. Marris points out that a firm has to maximise its balanced growth rate over a period of time. 4
output determination under monopoly.
output determination under monopoly Assumptions