PGDM Batch 2021-23

Managerial Economics Assignment, Trimester 1, AY 2021-22

Full Marks: 20

Instructions:
1. Submit your scanned hard copy (in PDF format, upto 4 MB) of answer script on OLT.
It is individual submission.
2. You have to upload your submission latest by Saturday, September 25th, 11.59 pm.
3. Write your name, section and enrolment number clearly, otherwise it will not be
evaluated.
4. Crisp and to the point answers will get more credit.
5. Similar answer scripts may be awarded negative marks. No unfair means should be
taken to answer the questions.
6. Each student has to answer all questions from one group only. Everyone from Section A
will answer Group 1 and everyone from Section B will answer Group 2. Adhere to that
strictly.

Group 1 (for Sec A)

1. In 2001, Europeans became very concerned about what is called mad cow disease, and thus
about the dangers posed by eating contaminated meat. What would this concern do to the
demand curve for beef? to the demand curves for chicken and fish? to the equilibrium price of
beef, chicken, and fish?
Mad cow disease is spread by feeding cows food that contains parts from infected animals.
Presumably the reason why cows are fed this food is that doing so is cheaper than relying
exclusively on grain. What is the consequence for the supply curve of beef of restricting feed
to grain? What are the consequences for the price of beef (a) if the new restrictions fail to
restore confidence in beef and (b) if the new restrictions succeed in restoring confidence so
that the demand curve returns to its original position?
At about the same time in Europe, there was an out-break of hoof-and-mouth disease; to stop
the spread of the disease, large numbers of cattle were killed. What does this do to the supply
curve of beef? to the equilibrium price of beef?
12

2. Fast-food restaurants like McDonald’s are replacing cashiers with touch-screen ordering
kiosks. Currently, the marginal product of another cashier is 48 customers served per hour;
the marginal product of another kiosk is 32 customers served per hour. A cashier can be hired
for a wage of INR 300; a kiosk rents for Rs 150.
a. Is McDonald’s currently minimizing the cost of serving its customers?
b. If there is a scope, show how McDonald’s can improve its profits by changing its input
mix. 4

3. A student club wants to raise just enough income to cover its costs. Its income comes partly
from membership fees and partly from selling tickets for its nightly discos. Attendance at the
discos currently leads to overcrowding of the club's room. The demand for membership is
price inelastic and the demand for discos is price elastic. To reduce the crowding without
changing its total income, what should the club do? 4
Group 2 (for Sec B)
1. Farm output is extremely sensitive to the weather. In 1988, the midwestern region of the
United States experienced one of the worst droughts ever recorded; corn production fell by 35
percent, wheat production by more than 10 percent, and oat and barley production by more
than 40 percent. What do you suppose happened to the prices of these commodities?
These grains are an input into the production of cattle. The higher cost of grain led many ranchers to
slaughter their cattle earlier. What do you think happened to the price of beef in the short run? In the
intermediate run?
Why did the drought in the Midwest lead to increased prices for vegetables and fruits? 12

2. A firm has a party budget to spend on fruit punch and cookies. Suppose the price of
punch is Rs. 40 per glass and cookies is Rs.10 per cookie and the firm has a budget of Rs.
2000. A representative employee representing others expresses the preference as follows:
she would substitute 5 cookies per glass of punch. Should the firm spend more on cookies
or more on punch and why? 4

3. You are an economist, and the Government Finance Committee has come to you for
advice. The government is considering bolstering its finances by imposing a tax on either
salt or cheese. You know that the markets for salt and cheese are roughly the same size,
although the demand for salt is highly inelastic, whereas the demand for cheese is highly
elastic. Salt and cheese have similar supply elasticities. Which option do you recommend
as the least costly choice? 4

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