SEMESTER: 1st

Subject Name : Managerial Economics Permanent Enrolment Number (PEN) : 9999602412EL2012-01-MBA0001-1819 Roll Number (SEN) : Student Name : Swati Jaiswal Managerial Economics Assignment A Q.1. what are indifference curves? Explain the consumers equilibrium under the assumptions of ordinal approach. Ans. An indifference curve is a graph showing different bundles of goods between which a consumer is indifferent. That is, at each point on the curve, the consumer has no preference for one bundle over another. One can equivalently refer to each point on the indifference curve as rendering the same level of utility (satisfaction) for the consumer. Utility is then a device to represent preferences rather than something from which preferences come.[1] The main use of indifference curves is in the representation of potentially observable demand patterns for individual consumers over commodity bundles. Ordinal Approach is the Indifference Curve approach. Consumer equilibrium is the point where consumer attains the highest level of satisfaction. There are two conditions of equilibrium under ordinal approach1. Necessary conditionBudget line is tangent to the highest possible indifference curve. 2. Sufficient conditionAt equilibrium the indifference curve must be convex to the origin.

Thus at equilibrium ,Pox/Py(absolute slope of the budget line)= dx/dy(absolute slope of indifference curve). In simple words it is the determination of consumers equilibrium with the indifference curve.

Q.2. Examine the concept and relationship of Total, Average and marginal costs with the help of suitable diagram.

In economics total cost describes the total economic cost of production and is made up of variable cost which vary according to the quantity of the goods produced and include inputs such as raw material plus fixed cost which are independent of the quantity produced and include inputs that cannot be varied in short terms. Total cost in economics includes the total opportunity cost of each factor of production as part of its fixed and variable cost. The rate at which total cost changes as the amount produced changes is called marginal cost.

Average cost is the total cost divided by the total number of goods produced. It is also equal to the sum of average of the variable cost plus average fixed cost. Average cost may be dependent on time period considered production. Average cost affect the supply curve and the fundamental component of supply and demand.

Marginal cost is the change in total cost that arises when quantity produced changes by one unit. If the good produced is infinitely divisible, so the size of marginal cost will change with the volume as a non-linear and nonproportion function cost function includes1. Variable terms dependent to volume. 2. Constant terms independent to volume and occurring with the respective lot size. 3. Jump fixed cost increase or decrease dependent to steps of increasing volume. In general marginal cost at each level of production includes any additional cost require to produce next unit. RELATION OF MARGINAL COST AND AVERAGE COSTWhen average cost is declining as output increases, marginal cost is less than average cost. When average cost is rising, marginal cost is greater than the average cost. When average cost is neither rising nor declining marginal cost is equal to average cost. REALTION OF MARGINAL COST AND TOTAL COSTThe total cost function and its derivative are expressed as follows where Q represents the production quantity, VC represents the variable cost FC represents fixed cost and TC represents total cost. MC= Dtc/ Dq= D( VC+FC)/Dq= Dvc/ dQ.

Q.3. Differentiate and elaborate the concepts of returns to scale and law of variable proportions Ans. Return to scale is the technical properties of the
production function. If we increase quantity of all the factors employed by the same amount, the output will increase.

Although any particular production function can exhibit increasing, constant or diminishing returns throughout, it used to be a common proposition that a single production function would have different returns to scale at different levels of output (a proposition that can be traced back at least to Knut Wicksell (1901, 1902)). Specifically, it was natural to assume that when a firm is producing at a very small scale, it often faces

increasing returns because by increasing its size, it can make more efficient use of resources by division of labor and specialization of skills.

Q.4. Why is demand forecasting essential? What are the possible consequences if a large scale firm places its product in the market without having estimated the demand for its product? Ans. Estimation of a demand for a product in a forecast
year/period is termed as demand forecast. Demand forecast is a must for a firm in todays market. NEED OF FORECASTINGForecasting is done both for long and short terms. In short term forecast seasonal patters are of prime importance. Such forecast helps in creating suitable sales policy and proper scheduling for output. It helps in arriving suitable price for the product and necessary modification need in advertising.

Long run forecast are helpful in proper capital planning. It is used in opening of new units or extension of present unit. PURPOSES OF FORECASTINGBetter planning and allocation of resources. Appropriate production scheduling. Inventory control Determining appropriate pricing Settings sales targets and establishing controls of incentives Planning new unit or expanding the existing ones. Planning long term financial requirements. Planning human resource development. The organization will face two major risks1. Overestimating demand 2. Underestimating demand One risk arises from entirely unseen demands such as wars etc. The second risks arises from inadequate analysis of market.

Q.5. Discuss the various steps involved in a managerial decision making process. Explain, in detail, any two group decision making techniques.
Ans. Decision is a process that is made from alternative course of action in order to deal with a problem. A problem is a difference between the desired solution and actual solution. Therefore decision in a process of choosing best among all alternative . Method of decision making1. Identify the problem.

2. 3. 4. 5. 6.

Generating alternative coarse of action. Evaluating the alternative. Selecting the best alternative. Implementing the decision. Evaluating the decision. There are number of techniques that can be used in decision making1. GROUP DECISION TECHNIQUESThere are several group decision techniques.

BrainstormingIt is a technique in which group members spontaneously suggest key to solve problem. Nominal group TechniqueIt involves a use of highly structured meeting agenda and restricts decision and interpersonal communication during decision making process. Delphi group techniqueIt employs a survey to gather opinions from different opinion without gathering a meeting. LINEAR PROGRAMMINGIt has been defined as a technique for specifying the use of limited use of resources or capacities of a business to obtain particular objective such as least cost, highest margin, or least time .All linear programming must have two basic characteristics. First, two or more activities must be competing for limited resources. Secondly all relationships in the problem must be linear . Linear

programming can be used in the solution of many kinds of allocation decision problems, but its application is certainly limited. For example, to be employed effectively the decision problem must be formulated in quantitative terms. Nevertheless, the approach has many advantages and its application in the area of business decision making is increasing.