NMIMS Global Access

School for Continuing Education (NGA-SCE)

Course: Business Economics
Internal Assignment Applicable for June 2022 Examination

Assignment Marks: 30

Instructions:

 All Questions carry equal marks.

 All Questions are compulsory.
 All answers to be explained in not more than 1000 words for question 1 and 2 and for question
3 in not more than 500 words for each subsection. Use relevant examples, illustrations as far
as possible.
 All answers to be written individually. Discussion and group work is not advisable.
 Students are free to refer to any books/reference material/website/internet for attempting
their assignments, but are not allowed to copy the matter as it is from the source of reference.

 Students should write the assignment in their own words. Copying of assignments from other
students is not allowed.

 Students should follow the following parameter for answering the assignment questions.

For Theoretical Answer For Numerical Answer

Assessment Parameter Weightage Assessment Parameter Weightage
Introduction 20% Formula 20%
Concepts and Application 60% Procedure / Steps 50%
related to the question
Correct Answer & 30%
Conclusion 20%
Interpretation
Question 1. Assume that a consumer consumes two commodities X and Y and makes five combinations
for the two commodities:

TABLE BELOW

Combination Units of X Units of Y

A 25 3
B 20 5
C 16 10
D 13 18
E 11 28

Calculate Marginal rate of Substitution and explain the answer. (10 Marks)

Answer:

The marginal rate of substitution is the willingness of a consumer to replace one good for another good, as

long as the new good is equally satisfying.

Formula and Calculation of the Marginal Rate of Substitution (MRS):

The marginal rate of substitution (MRS) formula is:

MRS = Y / X (derivate of Y with respect to X)

Where X & Y are two different commodities.

MRS (A B) = 5 -3 / 20 – 25

= 2 / -5

= - 0.4
MRS (B C) = 10 - 5 / 16 – 20

= 5 / -4

= - 1.25

MRS (C D) = 18 - 10 / 13 – 16

= 8 / -3

= - 2.67

MRS (D E) = 28 - 18 / 11 – 13

= 10 / -2

=-5

Question 2. Elaborate the term Total Revenue and Marginal revenue also calculate TR and MR in the given

table (10 Marks)

Answer:

Total Revenue:

Total revenue is the amount of money any business generates from selling their products or services during

a fixed period. It is also known as gross revenue.

Total Revenue = Price * Quantity

In this, “P” refers to the price per unit of that product, while “Q” refers to the quantity sold during the period

you are calculating for.

Marginal Revenue: Marginal revenue directly links to total revenue. It measures the increase or decrease in

revenue because of selling an additional product or service.

Marginal Revenue = Change in the Total Revenue / Change in the Quantity of Goods Sold

Price Output (In Units ) Total Revenue Marginal

Revenue
20 1 20
18 2 36 16
16 3 48 12
14 4 56 8
12 5 60 4

Question 3.a. From the given Demand Schedule for air tickets, calculate elasticity of demand.

(5 Marks)

Price of Air Ticket (Per Ticket) Quantity Demanded

(Tickets per month)

1,00,000 5,000
1,20,000 3,500

Answer:

The percentage change in the quantity divided by the change in price is the price elasticity of demand.

given that,

Elasticity of demand = (120000-100000) / (5000-3500)

= 13.33

Therefore, the elasticity of demand =13.33

This means that a rise in price results in a commensurate drop in the amount of plane tickets demanded.
3.b. Elaborate the term Elasticity of Supply and explain any three factors that determines elasticity of

supply (5 Marks)

The law of supply shows the direction of transition – supply escalates as price rises. However, the law of

supply does not indicate how much a rise in supply will be registered in response to an escalation in price.

Thus, we need the concept of elasticity of supply to analyze the quantity of such transition. The elasticity of

supply evaluates an organization’s ability to raise or lower production due to the price change of a

commodity.

Factors that influence the elasticity of supply include:

Ease of storage: A company can escalate its elasticity of supply by stockpiling parts or the final product to

enable it to respond to price increases effectively. However, this flexibility does not favour companies that

manufacture perishable goods.

Availability of inputs: A company whose inputs are readily available is more elastic than a company that

has to wait or search for inputs. For instance, a hospital may require months to find and negotiate with an

experienced surgeon. On the other hand, a welding services company would hire more workers in a short

period since only fewer skills are required. Thus, the hospitals' supply is more inelastic than the welding

services company.

Time: Time offers flexibility to respond to market transitions; thus, a long-term supply curve provides more

elasticity than a short-term curve.

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THE END