You are on page 1of 10

c

c
c
Master of Business Administration- MBA Semester 1c
MB0042 ± Managerial Economics-4 Credits
(Book ID :B1131)
Assignment Set- 1 (60 Marks)

Note: Each question carries 10 Marks. Answer all the questions.

c
1.c ëhat is Price Discrimination? Explain the basis of Price Discrimination.
u ccc c
     c  cc c ccc  cc  c
  c  c c

  c   c c c  c 


c 

c
 cc  c  c c
  
 c
   c c c

 c     ccucu c c c  cc c     c


c  c
   ccu  c c   c c   c
  c  c c c  c 
c
 cc  c
   c   ccc   c
c  cc   c
    c !
 c
c 
c
"ccc  c c c
#

c c c   cc  c   c cc cc
cc c
 c c cc  c$ c c  
c cc cc c cc  c  c c c$ c
 cc$ c
%c  c  cc c  c 
cc&  cc  c 
c c  #c c  c c

  c   c
  c  c c c  
c

 c c c  cc   c
 cc
  c  c c c  
c c c   cc c c  c  c

c 
#c   c c
  c
c  c
'cu cc(c   c c   c c c# c
  c #c   c c c   c
  c
)c  cc*c   c
c  c    c cc  c c  c c+cc
 c
  c c c
c   c  cc c
  c c  c
,c(c
 cc&  c c
c c 
cc
 cc c cc  c
  c  cc

  c   c- c  c c  c   cc c c c c  
c c c c
 c  c   c
.c/ cc c 
cc  c  
c c

c c  cc 
 cc c

   c  c   c  c c  cc


c$  c
c c  c c c
   cccc
0c1 cc   cc&  c   c c c2  c
  cc c
c c c
 c&  c c2  c c   
c
  c c c c 
c
3c4  c cc   c     c c  c
  c  cc c  c
c
   c   c c$ c
  c5c   c c c c c #c  c
 c
c   c c c 
c  c  c
6c     c c c   cc  c
c cc cc7c
 c c  c   c c
 c  c  c
c c c c c  c
c(c  cc   cc c8cu   c   c  c c*c
c
*
 c c   cc 
  c
c
c # c  c   c c-c c
c--c

c
c
c

 c # c


  c c
c c
 
c  c c  c
c
  c  c c
 cc
"c7cc9  c   c c  c  c
c   c   c  c
  c  c c
 c

c 
 c
%c   c c 
cc9  c
cc c 
c
 c
  c 
c   c c 
c   c
 c
 cc c   c  c 
cc c 
cc
  c  c# c  c  c c
c  c
  c c cc  c
'c(c
c c   c  cc c  cc7c  c c  cc   c c c  c
   c cc   c  c
c #c   c c  c
c c cc  c
 c c c  c
)c9 #  cc c  cc-cc   c c cc  c   c c
c c  
c
   c  c c
c c  
c
,c     c c c   cc $cc- c  c  c
c 
 c c
    c
 c c
c c  c c   cc  cc  c
.c-c c
   c c   c   c
c c   c c  c
     c
0cc   c
ccc   c  # c

c
2.c Explain the price output determination under monopoly and oligopoly.
Price ± Output determination under Monopoly

7   cc
cu c  c c cc $ : c cc c
c-c c c c  c4#c   c
c-c   cc  c;c  c  c ccc   cc
-c c   cc c c c cc   c
c2  cc c c
c
  c c
 c
c c  c
 c  c
7 cc
c c c
 c c#c  cc c   c c  c  cc

 
c
c c
c c c c c c
   cc2  c c
cc c
 cc c  c  c& c$ c c c
cc c  c c  c
 
 c c c   c  c
cu c   c c  c$c c cc  c 
c c c c<c c$c c c
c
  c c c    c<c c$c c cc  c 
c
cc cc c

  
c c c
 
c
 c c c c$c cc
c#c c cc c

  
c c c
 
c
 c
"c-c
c c  c  cc c   cc$c c cc c 
c   c  c$ c
 c c  cc
c c
cc  c c c
 
c
c cc
 
c
 c c 
 c
%c& c
   c c c c   c  cc 
 c c
 cc
 
c cc
 c 
c  cc c   cc   c c  c  c
   c#  c  c cc
'c-c c
 
c c  c 
c c  c c c  cc #c   c c
cc c

 
c c c c  cc  cc #c c c
)c<c c c  c2  cc c c c  c2  ccc   c c
,c<c 
c  c c  c    c c  c c   cc  c  ccc
.cu c  c
c c c c
 c  c cc cc c   c c c   c

c
c
c

Price ± Output Determination under Oligopolyc


-c c   cc c c  c c c c   cc  c
 cc  c  c
c
c cc c

c c c  ccc
c # c  c<# cc
 c  cc c c cc  c
 ccu c c c c
-

 c  c  = #cc
&  c
c 

c c
  c  c c  c c c   c c    c c
 c  cc cc
 c c c cc$cc  c  c7c c  c c
 c>4 c ?c
c
!  c cc  c c(c c c c c c
2c  cc  c
 cc c c
# cc  c  c c c c cc
c c c c   c
< cc c c c c
c c>7 c  ?c c c  c
&  c
c 

c c
  c c c
  c c  c
  
cc c
 cc c c c

 c  cc c c c cc  c- c  c c
 c c c cc cc c cc
 c
c c c 
c c  c  c c
 c
  c<# c
cc 
c
   c c c  c  c  c c-c c
 
cc c  c  # cc c c c c   cc c
cc = c
 c
  c c
c c c c$c cc c #c#c7c c
cc
  c  c# c c  c#  c  cu c c cc  cc c c c c
  c
c  c c c  c-c c
cc= c  c ccu cc
 c$
c cc c cc c  c c c c
c
 c c c  c c
c
 c c c$
c c c #c c-c c c   cc cc c  c
 c
  c  cc
<# c

 c  c c c
cc   c  c # c   c =
 cc  c c  c
   c   c c c  cu c c c :c c
 c cc  c
c c

cc#
cc
cc  c-c   cc

 cc c  cu  c
cc  c
 c  c- c  c
c

 c
  c c c
c c cc  c 
c
cc c c cc c 
cc c

c
3.c ·ive a brief description of:
(a) Total Revenue and Marginal Revenue
(b) Implicit and Explicit Cost

Total revenue (TR): uc # c  cc cc  cc  c c c c # c
  c c cc c 
 cc  c # cc
- c  c
cc c cc  c  c 
c  c c cc ccc 

c# c
c# c 
cc c&c c cc # c cc  cc cc2 c 
ccc
# c c c c
u*c@c2c-c  c c   c c  c  c
c c cu*cu  cu*c@cA1c ccc
 c  c)666c  ccc 
cc c cc* c)c c c  cu*c
c c
u*c@cc$c1c@c)c$c)666c@c")66666c

c
c
c

c
c

Marginal Revenue (MR)c


  c # c c c c   c cc # c :
c  c  c c  c ccc
 
cIt is the additional revenue earned by selling an additional unit of output by the
seller. c
( cc c c  c'c  cc ccc c cc* 'c c c/ccc  cc
c)c  c 
cc'c  c
c   c c cc c 
c cc* "c c c  c c
  c # cc c c2cc* "cc  c c) c c c 
c'c  c  c c 
c
c c cc* 'c  ccc #cc c 
cc c 

c cc* "c
c cc
 c c cc"c  c c cc c # c'c  cu cc c c c # c  cc
c2cc* 0cu   c  c cc0c  c 
c c


c  c c cc* "cc
 c) c c c c c   c # cu c   c # c c  c c   c
c c* "c5c* 0c@* 'c
c c* "c  c c c# c # cc
  c # c c c c
 c
c c
 cc c
  c  c cc
# c  c
c c  c c

 c cc c 


c
uc # c  c'c  c c 
cc c cc* 'c@c'cAc'c@c* ),c
uc # c  c)c  c c 
cc c cc* "c@c)cAc"c@c* ,6c
u   c  c # c c c c # c 
c c c) c c@c,6=),c@c* 'c
u  c  c # cc c  c c@c
  c cc # c c    c c c  c =
cc c  c c
  c # c@c cc  c c   c c c # c c # c  c   c  c c

 c
u c c c   c c  c   c  cc B c cc  c  c c
  c c   c # c2 c c   c cc c c c c$ c # c  c  c
 c  c c c  c  c c$ c cc  ccc c  cc
c c
-c c c c   c # ccc cc cc  cc c#ccc c
c ccc
 c  c c  c c 

cc #c   c  c c
 
c  #c

*c@c @c  ccu*c     c  c cu*cc


7
cc1c
 c  c cc2 c 
c
7 c*c@cu* c5cu* =c
  c # c c2cc c  c cc # c# c c  c c2 c
  c*# c@c9  c cc # c
#

c c9  c c  c
C  c  c u*c 7*c *c
c "6c "6c "6c =c

c
c
c

"c 0c %,c 0c ,c


%c ,c '0c ,c "c
'c 'c ),c 'c 0c
)c "c ,6c "c 'c
u  c c   ccc c c   c # cc c c  c c  cc
 
c #c
 c
 
c c c# c # c-c c c  c'c  c c* 'c c# c
# c c c c c* '66cc c  c  c  c c# c # c c c
 c

c  c c c  cc c   c # c c c c c c# c
 c
-c c  c   c # c c cc c  ccc # cc  c  c-c
 c   c c    cc # c c   c # c  c c  c  c: c-c
  c # c c c  c: c  c  c   c c cc  cc # c-c
  c # c c: c  c  c   c
 c c  cc # cu  c  c
$  c  c   c # c    c c cc cc # c #c

Implicit or Imputed Costs and Explicit Costs: 8$c  c c  c  c  c c c c
 cc  c   c
c c
c c c     cc c cc 
 c
D$
 c  Ec c c cc  c c   c
c  cc$  c
c
   c c c   ccu c c c  
c
c
c$c
c 

c c c
 cc  c
- c c 
c  c c 
c  cu c
c cc c cc c c
c c
 c
c c c c c  cc  cu c c c   cc  = 
c
   c c$ c c c  c 
c c c     c  ccc c c
c:
c c  c c c c 
cc  c cc  c  cc c  c
 c c
:c  c c c    c-c cc c    
c c cc c cc  cc  c c

c$c  c
c

4. Explain the Law of Variable Proportion.


The Law of Variable Proportions: u  cc c cc c  c
  c cc
 
 c-c# c c cc cc   cc c  ccc c  c
c   c
c c  c7c c  c c c# c c c< c c
 cc$
c c
c  c c  c cc  c
c#  c c cc   
c c  c
2  c7

 c  ccc#  c c c c$


c cc  c  cc
#  c ccu ccc#  c   c c ccc  =   ccc
$ c c#  c c c c c#cc c#  c c c

u cc c c 
c c c c7 c c2 cc
  c  cc c c c c
 c   
ccc# c2 cc$
c c 
cc  c c c   c# c

ccc# c
 cc
u ccc#  c   c c c c  c c c  c>Fcc    c* ?c
c c    cu  cc c 
c c#  c    c c c c   c5c
7
 cc c  c>7 c c   cc c c cc   cc c c
   
c cc c c c   c
c  c c# c 
cc c cc

   ?c

c
c
c

u c  c
c  c  c$  
c c  c c c c
c7 c   c c c
2 ccc#  c c


cc$
c cc c
c   c cc c  c   c
   c c c  cc 
c# c c
 c
c
Assumptions of the Lawc
c c c#  c c c cc c# 
c cc  c c 
c cc  c
Gc  c  ccc#  c c c    c
Gcu 2 cc 
 c   c  c
Gcu ccc 
c
c c cc  c
cc# c 
c
Gcu  c c   c c#  c c   cc c  c
Illustrationc
7c  c 
 c  
c c 
ccc$ c c  cc cc
$
c c@cc7 cc
cHc* c)666=66ccI  c c@c  c

c
Total Product or Output: uc-c c cc
 #
c  cc c  c  c$
c;c
#  c 
c c c 
 c-c c cc  cc   cc
Average Product or Output:c7c-c c c  
c c
#
 ccc c c   cc
#  c c 
c
Marginal Product or Output:cc-c c cc
 #
c  c c   cc c


 c cc#  c c c

u 
 

  c c c c c  #c c c


  c c cuc7c;cc
cucc c c    c c c cc c #c-c c c   c  cc c: c

cuc
  c  cc   c #cc
"cc    c c c   c   c c   c c
c
    cc c
c
%c7cc c #c c  c
  c c cc- c c   ccc c   c  c7c
cc c
c7cc c   c  cc
Diagrammatic Representationc

c
c
c

c
- c c #c
  c c cAc$ cc   c c  cc#  c c 
c

c cJc5c$ cc   cuc7c;cc  c c
  cc c c c  c c---c
 c
Stage Number I. The Law of Increasing Returnsc
u ccc    cc c    c c c  c   ccc c cc
 c  
 cc  c cc cc c   c
c   c c   c c7 c c
 ccc
 c
c c  cuc    c 
c
u c c c  cc c
cc c c  cc #c c c7c #c  c c7c c
$  cc/c
The I stage is called as the law of increasing returns on account of the following reasons. c
cu c   cc$
c c c  c  c c2 cc#  c c&  c c
 
 c    c c2 cc#  c c  #c
c#c: cc$
c
 c  c  c
 cc   cc
"c&  c c 
 c    c c2 cc#  c cc    c
cc c
 c: cc c>-
#  c ?cc
%c7 c  c  cc c#  c c c 
c c cc#  c cccc
 cc  c  c  c c c  
 cc
#  cc  c
c : c
  c c   cc
Stage Number II. The Law of Diminishing Returns c
- c  c c c c2 cc#  c  c c   
ccc# c2 cc$
c c
c    c c  c   c- c  c c cuc    ccc
    c c
 c  c7c;cc c
  c c c c #cu c--c c  cc c
cc c c
  cuc c c   cc c c8c
cc c: cc c cc-c c  c c c cc
>    c* ?c  c  c c7c;ccc c#  c c   cc
  c
  c c-c c c c  c c c c c $ : c ccc
Diminishing returns   c
cc c c   c
cu c   cc#  c c c  c  c c2 cc$
c c< c  c7c
;cc
 cc
"cucc
    c  c  c cc cc cc: cc
#  c c
c
  
 cc : c< cc
  c

c
c
c

%c    cc cc c 


c c cc  c 
 c
'c-  c   cc c  c c   c cCcc  c c   c c
 c c  c c c  
c c$
c c c c  
c c c
#  c c    c  c c 
cc c c c c c c  c c c$
c

c c c  
c c c  c
The III Stage The Stage of Negative Returns: c
- c  c c c c2 cc#  c c c   
ccc# c2 cc$
c c
c   c #c  c  c cuc   c
    c7c   cc
   c
c
c   c #cu c #c  c c c  cc$ #c2 cc#  c
 ccc  c2 cc$
c c< cc
  cu c # c>uc  c
 c c c  ?c
c>cuc  c cc 
?cc cc  c c4  c c---c
c cc  c  c  c c 
 c
ccc cc  c cc
u c 
 c  c  cc c c  c c c-c  c  c c  c c  c
c   cc c  c  c  cc#  c c c c---c c  c cc c
#cu c c-c;c---c c
   
c c//=8  c* c cC   c* c
< c c 
 cc c c--c c  c c
   
c c c  c  c  c
  c c c $ :c ccu c--c c     c c  cc  c 
 c

  c
It is clear that in the above example, the most ideal or optimum combination of factor units
= 1 Acre of land+ Rs. 5000 ± 00 capital and 9 laborers.c
7c c%c  c  c c ccc#  c   c( c c 
c c c c
 c   c c cc  c  c  cc c ccc    c* c

5. ëhat is Elasticity of Demand? Explain the factors determining it.


8 cc
 
c c  c
 
c c c   #  c c  #  cc
 
ccc
# c  c c c ccc 
c-c  cc ccc
 
c  cc   c c
 ccc# c  c c c8 cc
 
c
 cc cc #c   c cc
2  c c
c
 
c7
 cc c
 c>8 cc
 
c    c
 c   #  cc
 
cc   c c ?cc- c c
cc ?cu c c c
  #  cc
 
c cc  c c c c c
 cc c  c
 

c
 c cc cc# cc c c
c
    c  c cc cc# c  c c ?c"c

Determinants of Price Elasticity of Demandc


u c cc
 
c

c c # c cc  c c c c  cc c
   c  cc
1. Nature of the Commodity: 9 
 c  c
 c c cc    c
c
   c
cc c  c  cc c  c # c c c c c c$ c
c c  c c#  cc c c  c 
c c   c
c$  c
 
c

cc c ccuIc  c    ccc
2. Existence of Substitutes: Substitute goods are those that are considered to be
economically interchangeable by buyers. -cc 
c  c c   c c c  c

 
c
cc c  c  cc #ccc   c c c  c  c c
$ c(c  c c  cc- c cc 
 c # c
  c   c

 
c
cc c c c$ c 
 c c  c  ccc
3. Number of uses for the commodity: Single-use goods are those items which can be used
for only one purpose and multiple-use goods can be used for a variety of purposes. Icc

c
c
c

 
c  c c c c  c c 
c  c
 
c
cc c  c  c
c #ccc  c  cc c #cc c c 
c c c c c c$ cc

cc  c 
c : c 
 cc c c   c 
 c # c # c
  cD = = 
 Ec
 
c
cc c c c$ cc c ccc
4. Durability and reparability of a commodity: Durable goods are those which can be used
for a long period of time.c 
c
cc c c c cc
  c
c   c
c
 cc
c c c  c 2 c c$ c c  c#  cc c c  c

c c   c
c  =   c
c
 
c
cc c  cc c
#  c  c  ccc
5. Possibility of postponing the use of a commodity: - c c  c c c  cc  c
 c ccc 
cc c c
 
c
cc c  c  cc #cc c
  c  #cc  c  c c$ c 
  c-c  c c  cc  c c
 ccc 
c
 
c
cc c cc  ccuIc c  cc  c
  c cc ccc
6. Level of Income of the people: 4  c  c
 
cc c #c  c c
 cc  cc  c c  c c  c cc c c
cc  c   c
 c c c   c
 
c
cc c c c cc cc
7. Range of Prices: u  c c  c
c c 
 cc  
c c  c
   cuIcc  c c c c  c(  ccc  c
cc  Kc 
 c
c cc 
c
c- cc  c  cc cc c  c c  cc #c   c
c c  c
 
c< c
 
c c  c c  c c  c<# c 
 c
# c  c  c c c c  cc
8. Proportion of the expenditure on a commodity: &  c c  cc  c  c c
 cc 
c c  cc c cc c c c c
 
c
cc c  c c
$ c c   c cc c c  c c c  c 
c c  cc  c  c c

 Kc
 
c c c c
cc c c c$ c#  c
c  c c
 #  c cc
9. Habits: &  cc c  
c c c ccc 
c c
c c c c c
   c# cc  c  c c$ c c cc  c
  c cc cc- c
 c c
 
c
cc c  c-cc c c  
c c c cc c 
 c
  c
 
c  c
cc c cc
10. Period of time:  c cc
 
c#  c c c  cc c c 
c
4  c  c c c  c 
c
 
c c  c  c   c   cc c
c  c
c 
 cc
c c  c c c   c
 
c
cc c c c
 c c 
c  c  c c  ccc
cc   cc
11. Level of Knowledge:  
c c cc   
c   c
c c c
c c c
c   c   cc
c c  cc
12. Existence of complementary goods: ·oods or services whose demands are interrelated
so that an increase in the price of one of the products results in a fall in the demand for the
other.c4
c  c c! c
 

c c  c c  c c$ c c
c c
#  c
c c  c
c  cc #c  c
 
c c  c   c-cc 
c
 c
c #c    c c c c
 
c
cc c c c$ c   c  c
c  cc- c  c c c ccc 
c c c 
cc c  c 
 c
13. Purchase frequency of a product: -c c 2 cc   c c# c  c c
 
c

cc c  c cccc c  c $cc c c  c 
ccc cc

c
c
c

 
c  c
 
c
cc c c c$ c
  c
cc 
cc

 c    cc
u  c c
 
c cc 
c c c c  cc

c cc   cc cc

c
, ëhat is Marginal effeciency of Capital? Describe the factors determine MEC.
Marginal Efficiency of Capitalcc-c  cc 
#ccc-c c c
 
c c c
  c cc  c# c c  c  c c

 c ccc c7 cc  cc


 c
c$
c  cc c cccu c89c c c c

c cc   c
 c

c  #c
c  c cc c
cc
"cu c c cc cc c

Determinants of MEC:
(# c c cc89c c# c c
1. Short run factors: 8$ cc   
c
 
c   c89c
cc  c #   c

c#=# c
2. Cost and Price: -c c 
 c  c c$
cc
 c
c  c  cccc c
 c89cc c  c
 ccc  c c #   c
c#=# c
3. Higher Propensity to consumec
 ccc  c c89    c   c #   c
4. Changes in income: 7 c   c c  cc  c #   c
c89c cc

 c c c#cc   cc


  c #   c
5. Current state of expectations: -c c  c  cc  c c  c c89c c 
cc
c  c c c ! cc #   c
c#=# cu  c c  c c c$ cc
c# c c$ c

c c c  c cc   c
6. State of business confidence:   c c 
cc  c  c c89cc c
  c  c
c
  c 
cc   c
   ccc c  c c
II Long run factors.c
1. Rate of growth of population: - cc c  cc  c cc c  c

cc c   c c89c  cc
cc c   c c c
 
c c  c   c

c #   c
c c c   cc
 c c c c  c
   c89c
2. Development of new areas: #  c# c c c c
cc   c
c
   c   cc c   cc  c ! c  cc
c

ccc  c c89c
3. Technological progress: u c   c
c
cc c
#  c
c cc
 c   
c
c c    c2   c
c     cu  cc

cc c
 
#ccc c  c
 cc c   c c89c
4. Productive capacity of existing capital equipments: C
 c 
c$  cc  c
c cc:
cc c
 
c c
c    c c c  c- c c c c89cc
 c  c cc
 c  c
5. The rate of current investment:c-c c  c cc #   c c 
c  c  c
c
cc c c   c #   c
c c  c c89c
  c
u  c # c c  c c c  c  c
c c c c  cc c89cccc c