This question booklet comprises of Part-A, Part- B & Part-C. Part A: Pate Part-c: NOohena IBS PGPM PROGRAM CLASS OF 2016-18 END SEMESTER EXAMINATION ‘Campus [ MUMBAI Semester | I Course | MANAGERIAL ECONOMICS ce SLECSO1 To be filled by the candidate ENROLLMENT NO. ‘CANDIDATE CAN RETAIN THE QUESTION BOOKLET AFTER THE EXAMINATION IS OVER. Part-A consists of 6 short note questions. The time alloted to complete Part-A is 30 minutes, Part B consists of 4-8 questions including testing your understanding of basic concepts, conceptual understanding, analytical ability and situational analysis but not limited to this order. Time allotted to complete Part B is 90 minutes. Part C consists of 1-2 case lets to test analytical ability, situational analysis and application of concepts. Time allotted to complete Part-C is 60 minutes. otal duration ofthe examination is 3 hours. INSTRUCTIONS TO CANDIDATES Answer Part-A Part-B & Part-C in SINGLE ANSWER BOOKLET. ‘Write your enrollment number on the first page of the answer book at the space provided only. All rough work may be done on any blank page in the answer book. Pencil should not be used for answering, ‘The unused portion of the answer book must be boldly crossed prior to submitting ‘Attempt all questions Marks are indicated against each question.PART- Short note questions on basic concepts and application of concepts TOTAL MARKS: 30 MAXIMUM TIME: 30 MINUTES Q1 How do Economies of Scale affect the shape of the long run Average cost curve. Explain with a diagram. (5 Marks) Q.2__ Explain consumer and producer surplus with the help of a diagram. (5 Marks) Q.3__ Explain how the kinked demand curve model works, (5 Marks) Q4 Explain the concepts of Economic costs and Accounting costs using a suitable example. (5 Marks) Q5__ Explain the use of Concentration Ratio in measuring the level of market power of firms in an lustry. (5 Marks) Q.6 What is a production function? What is its practical use? (5 Marks) PART-B Basic concepts, conceptual understanding, analytical ability and situational analysis TOTAL MARKS: 40 MAXIMUM TIME: 90 MINUTES Q.7 Last year Sheela, owner of a small drugstore showed the following information about her nual receipts and expenditures; Revenues - $1,000,000, Wages for hired labor - $300,000, Utilities - $20,000, Purchases of drugs and other supplies for the store - $500,000. However she has an employment alternative. She could also work elsewhere herself as a lawyer, eaming wages of $200,000. Determine her accounting profit, What would you advise her? (S Marks, maximum 20 words) Q.8 Mr.Varun produces DVD movies for sale, which requires an office space and a machine that copies the original movie onto a DVD. Mr.Varun rents an office for Rs.30, 000 per month and rents a machine for Rs.20, 000 a month. His other costs per month are given in the accompanying table.a. b. Q.10 {Quantity of DVDs __Nariable Cost 0 0 1000 5000 2000 3000 4000 3000 6000 7000 8000 9000 10000 Calculate Mr. Varun’s profit maximizing output. What is his shut-down price? Why? What will the price of DVD movies be in the long run? Why? A monopolist faces the following demand and total cost. Quantity | Price | Total Cost 0 20 20 | 1 18 21 z | 6 | eld 30 4 12 40 5 | 10 35 (5 Marks, maximum 20 words) (5 Marks, maximum 20 words) (5 Marks, maximum 20 words) Should he charge the maximum price? What price he should charge?(SMarks, maximum 20 words) b. Explain with a diagram how does Railway maximise its profits using price discrimination, What are the necessary conditions for price discrimination. (5 Marks, maximum 50 words) If Vodafone and Airtel both don't cut their tariffs, they make a profit of 20 er and 50 cr respectively. Ifthey both Vodafone and Airtel cut their tariffs, they make a profit of 40 cr and 30 cr respectively. If Vodafone cuts its tariff but Airtel leaves it unchanged, they make a profit of 50 or and 40 cr respectively. If Vodafone leaves it unchanged but Airtel cuts its tariff they make a profit of 30 er and 80 cr respectively’a, Prepare the payoff matrix. (4 Marks) b. What is the dominant strategy for Vodafone (2 Marks) ¢. What is the dominant strategy for Airtel? (2 Marks) d._ What is the Nash equilibrium? (2 Marks, maximum 20 words) « PARTC Case Analysis/case —lets/Applications of concepts TOTAL MARKS: 30 MAXIMUM TIME: GOMINUTES Q.11 The buzz about surge pricing can be heard almost everywhere. Suddenly, you hear ardent defenders of the surge pricing principle. At the same time, there is no dearth of people who are totally against ‘The Delhi government has banned surge pricing altogether, and has even hauled up drivers and impounded vehicles that have tried to charge customers a higher price during peak hours. The Director General of Civil Aviation (DGCA) has reportedly sent out a notice to private airlines asking them to explain the logic adopted behind their respective surge pricing policies. Cab companies like Ola and Uber protest. Respect free markets, they argue. After all, if the demand is great, and the supply of cabs is inadequate to meet the demand, surge pricing is the best way to regulate demand, they add. Surge pricing for taxi fares would force people to share rides or make better use of carpools and make better use of the available transport infrastructure, reducing fuel consumption and pollution. rawback, it would appear, is that it uses prices and the market to allocate rides and riders. ians love to hate market forces and pretend that they know better. In the absence of surge pricing, fewer people would share rides and more people would wait for single-occupancy cabs and waste time and fuel. Airline companies are not far behind, Remember, they were the first to adopt surge pricing. When the demand is great they increase fares. So is surge pricing right? Remember, there is a kind of surge pricing implicit behind the tatkal ticket booking introduced by the railways. Ditto with passport applications. But in both these cases the surge amount is defined. It is not left to “market forces”. There is a second problem when there is only a limited number of a licensed players. When the number of players in any market remains limited, their ability to rig the market, and collude to increase or reduce supply, is tremendous. Licensed markets tend to be natural monopolies. Hence the need to regulate them becomes all the more imperative. This includes service standards and pricing. Just imagine the outrage customers’ exhibit when the conventional (kaali-peeli) taxi driver decides to charge a higher tariff during days when there is a downpour, or when the train services go for a toss.Qn His attempt to charge more was nothing short of surge pricing. Ditto, when the grain merchant decided to charge a premium over grain, or kerosene when there is a shortage. Yet when they charge more, it is extortion. It is illegal. So, what makes the pricing policies of Ola and Uber, or the private airlines legal? Explain the concept of surge pricing with the help of adiagram. (5 Marks, maximum 50 words) Do you think government should allow surge pricing? Why or why not? . (5 Marks, maximum 50 words) Doing Business with Relish The rules in the food business have changed and how. Going by the experience of three Bangalore- based first-generation restaurateurs, one doesn't necessarily have to be of hotelier pedigree to whet people's appetite. Madhu Menon, Radhika Madhavan and Vishy Shenoy were not born in traditional involved in the hospitality business. On the other hand, they pursued successful corporate careers before succumbing to the itch of trying something new. The result was three specialty restaurants — Shiok Far-Easter Cuisine, 3 Amigos and The Biryani Merchant. When they ventured out, the restaurant business was already overcrowded and they had to jostle for a table for themselves and their clients, With customers becoming more discerning, this was not an easy task. Says Madhu Menon of Shiok Far-Eastern, "At my restaurant, I could have easily offered the same old Punjabi-Chinese fare which is very popular now. But I decided to give my guests a ifferent experience.” And so at Menon’s *high-calibre’ (he likes to call it that) restaurant, you can have Malay, Thai, Indonesian, Singaporean and Korean food. Radhika Madhavan and Mayur Raol, who have brought Mexican vegetarian, Italian, Mediterranean and American food to Bangalore, realised that branding was the most important aspect in a restaurant business and, thanks to their jobs in a market research and branding communications firm, their skills in these areas were well-honed. " Vishy Shenoy was pretty sure he had a good product on hand when he chose to start a “Biryani only’ place in Bangalore. "Of course, | realised that the product was right and all | had do was the right kind of marketing and packaging of the product.” He betted on Biryani because he knew there were Biryani aficionados spread across the country, Source: http://www. thehindubusinessline.com/life/2004/10/22/stories/2004102200130300.htm What kind of market structure does the restaurant industry in Bangalore represent? What are the features of this market structure? (5 Marks, maximum 50 words) Can the firms enjoy short run economic profits in the short run? Justify your answer either ways. Represent your answer with a suitable diagram. (10 Marks, maximum 50 words) Can the firms enjoy economic profits in the long run? Justify your answer either ways. Represent your answer with a suitable diagram. (5 Marks, maximum 50 words) ENO OF THE QUESTION PAPER