JAIPUR NATIONAL UNIVERSITY, JAIPUR

School of Distance Education & Learning

Internal Assignment No. 1

Master of Business Administration / PGDM

Paper Code: MBA – 103
Paper Title: Managerial Economics

Last date of submission: Max. Marks: 15

Q. 1. Answer all the questions:

(i) Distinguish between perfectly elastic demand and perfectly inelastic demand
Perfectly elastic means an infinitesimally small change in price results in an infinitely large change in
quantity demanded or supplied. This elasticity alternative exists when the price is fixed, that is, an
infinite range of quantities is associated with the same price. Perfectly elastic demand can occur, in
theory, when buyers have the choice among a large number of perfect substitutes in the consumption
of a good. Perfectly inelastic means that quantity demanded or supplied is unaffected by any change in
price . In other words, the quantity is essentially fixed. It does not matter how much price changes,
quantity does not budge. Perfectly inelastic demand occurs when buyers have no choice in the
consumption of a good. In an analogous way, perfectly inelastic supply occurs when sellers have no
choice in the production of a good.

(ii) Define marginal revenue.

Marginal revenue is the extra revenue generated when a firm sells one more unit of output. It plays a
key role in the profit maximizing decision of a firm relative to marginal cost . A firm maximizes profit by
equating marginal revenue, the extra revenue generated from production, with marginal cost, the extra
cost of production. If these two marginals are not equal, then profit can be increased by producing more
or less output.

(iii) What is opportunity cost?

The ultimate source of opportunity cost is the pervasive problem of scarcity ( unlimited wants and needs
, but limited resources ). Opportunity cost is fundamental to the study of economics (and life) because
scarcity is fundamental to the study of economics (and life). Whenever limited resources are used to
satisfy one want or need, an unlimited number of other wants and needs remain unsatisfied. Hence
pursuing one activity means alternatives are not pursued. Herein lies the essence of opportunity cost.
Doing one thing prevents doing another.
(iv) What is product differentiation?
Slight differences that exist between two or more goods that are essentially the same and which satisfy
the same basic want or need. This is generally pursued in monopolistic competition and oligopoly by
firms seeking to increase sales and profit. Many of the best known businesses in the economy practice
product differentiation to gain an advantage on the competition and to acquire a bit of market control.
For example, Coca-Cola and Pepsi-Cola are very similar, but each has a few differences in terms of taste,
packaging, and esteem.

(v) What do you understand by disposable income?

Disposable income, also commonly called disposable personal income (DPI), is after-tax income that the
household sector has at its "disposal." It other words the household sector can use this income for
either saving or consumption . It is officially calculated as the difference between personal income and
personal tax and nontax payments . In the numbers game, personal tax and nontax payments are about
15 percent of personal income, which makes disposable income about 85 percent of personal income.