MB0042-MBA-1st Sem 2011 Assignment Managerial Economics

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MB0042-MBA-1st Sem 2011 Assignment Managerial Economics

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Assignment Management

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M a n a g e r i a l Ec o n o m i c s M B A - 1 s t

Q.1 Income elasticity of demand has various applications. Explain each applic the help of an exam example? ple?

Ans: Income elasticity of demand may be defined as the ratio or proportionate cha quantity demanded of a commodity to a given proportion change in the income. indicates the extent to which demand changes with a variation in consumer’s in following formula helps to measure the income elasticity (Ey).

Or Where •

•

•

•

Ey is income elasticity of demand D is change in demand D is original demand Y is change in income

Master your semester with Scribd Y is original income & The New York Times •

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1. When Ey is positive, the commodity is normal (used in day-to-day life)

2. When Ey is negative, the commodity is inferior. ( for example jowar, beedi etc 3. When Ey is positive and greater than one, the commodity is luxury. 4. When Ey is positive but less than one, the commodity is essential. 5. When Ey is zero, the t he commodity is neutral. E.g. salt, match box bo x etc. Pr actical actical ap plication plication of income income elastici elasticity ty of dema nd 1. Helps in deter mining the ra te of of gr gr owth owth of the fir fir m. If the growth rate of the economy and income growth of the people is forecasted, in that case it is possible predict expected increase in the sales of vice versa. 2. Helps in in the dema nd for ecasting ecasting of a firm .

It can be in estimating future demand provided the rate of increase in income the products are known. Thus, it helps in demand forecasting activities of a fir 3. Helps Helps in pr oduction oduction planning and m ar keting. keting.

The knowledge of Ey is essential for production planning, formulating Master your semester with Scribd strategy, deciding advertising expenditures andRead nature ofFordistribution channe  Free 30this Days Sign up to vote on title  longYork run. Times & The New  Useful  Not useful Special offer for students: Only $4.99/month.

4. Helps in in ensur ing stability stability in pr oduction.

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Under this method, consumer buyers are requested to indicate their pref willingness about a particular product. They are about to reveal their future purchase respect to specific items.

They are expected to give answer to question like what items they intends to bu quantity, why, where, what quality they expect, how much they are planning to Generally, the field surveys are conducted by the marketing research departme company or hiring the services of outside research organization consisting of learned qualified professionals.

The heart of the survey is questionnaire. It is a comprehensive one covering questions either directly or indirectly in a most intelligent manner. It is prepared by body who are specialist in the field or marketing.

The questionnaire is distributed among the consumer either through mail or in the company. Consumers are requested to furnish all relevant and correct information

The next step is to collect the questionnaire from the consumers for the evaluation. The materials collected will be classified, edited and analyzed. If prejudices, exaggerations, artificial or excess demand creation are found at th answering they would be eliminated.

The information so collected will now be consolidated and reviewed b executives lot of experiences. It will be examined thoroughly. Inferences Master yourwith semester with Scribd  are Read Free Foron 30this Days Sign up to vote title conclusions are arrived at. Finally a report is prepared and submitted to the  mana & The New York Times Not useful  Useful  Cancel anytime. taking final decisions. Special offer for students: Only $4.99/month.

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8. Conclusion drawn etc.

The management should not entirely depend on the result of survey reports t pro demand. Consumer may not express their honest and real views and as such they ma the broad trends in the market. In order to arrive, at right conclusion, field surveys regularly checked and supervised.

This method is simple and useful to the producers who produce goods in bul burden of forecasting is put on the customers.

However this method is not much useful in estimating the future dema household as they run in a large numbers and also do not freely express their futu requirements. It is expensive and so difficult. Preparation of questionnaire is not an At best it can be used for short term forecasting.

Q.3 Show how pr ice ice is is deter mined b y the forces of of deman d a nd supp ly, ly, by usin equilibrium.

Ans: The word equilibrium is derived from the Latin word “aequilibriu means equal balance. It means means a state of even balance balance in which opposing forces neutralize each other. It is a position of rest characterized by absence of change. I where there is complete agreement of the economic plans of the vario participants ssemester o that t hat no one has aScribd tendency to revise or o r alter a lter his decision. Master your so with  In Read Free Foron 30this Days Sign up toof vote title professor Mehta: “Equilibrium denotes in economics absence change in movemen  & The New York Times Not useful  Useful  Cancel anytime. Special offer for students: Only $4.99/month.

Mar ket ket E quilibrium quilibrium

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value is governed by utility or cost of production. ” Thus neither the upper blad lower blade taken separately can cut the paper; both have their importance in of cutting. Likewise neither supply alone, nor demand alone can determine the price of a commodity, both are equally the determination deter mination of o f price. But the relative re lative importance of the two may vary upon the time t ime under consideration. cons ideration. Thus, the demand of all consumers and of all firms together determine determine the price of a commodity commodity in the market. market. Eq uilibr uilibr ium between between demand an d supp ly pr ice: ice:

Equilibrium between demand and supply price is obtained by the interaction o forces. Price is an independent independent variable. variable. Demand and supply are dependent varia depend on price. Demand varies inversely with price, a rise rise in price causes a fall in a fall in price causes a rise in demand. Thus the demand curve will have a down indicating the expansion of demand with a fall in price and contraction of dem rise in price. On the other hand supply varies directly with the changes in price, a ri causes a rise in supply and a fall in price causes a fall in supply. Thus the supply have an upward slope. At a point where these two curves intersect with each other the equilibriu established. At this price quantity demanded is equal to the quantity demanded. T explain with the help of a table and a diagram.

Price your in Rs semester Demandwith in unitsScribd Supply in units State of market Master Read Free Foron 30this Days Sign up to vote title 30 5 25 D
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In the table at Rs.20 the quantity demanded is equal to the quantity supplied. Since agreeable to both the buyer and sellers, there will be no tendency for it to change; th equilibrium price. Suppose the price falls to Rs.5 the buyer will demand 30 units seller will supply only 5 units. Excess of demand over supply pushes the price upw reaches the equilibrium position supply is equal to the demand. On the other hand rises to Rs.30 the buyer will demand only 5 units while the sellers are ready to supp Sellers compete with each other to sell more units of the commodity. Excess of s demand pushes the price downward until it reaches the equilibrium. This process w till the equilibrium price of Rs.20 is reached. Thus the interactions of demand and su acting upon each other restore the equilibrium position in the market.

Master your semester Scribd In the diagram DD iswith the demand curve, SS is the supply curve. Demand  and Read Free Foron 30this Days Sign up to vote title in equilibrium at point E where the two curves intersect eachother. OQ is the e & The New York Times Not useful  Useful OP is Only the $4.99/month. equilibrium Special output. offer for students:

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price. Suppose the price OP2 is higher than the equilib OP. at this point price quantity demanded is P2D2. Thus D2S2 is the excess supply

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Ans: Fixed cost: These costs are incurred on fixed factors like land, building, e plants, superior types of labour, top management etc. fixed costs in the short ru constant because the firm does not change the size of plant and the amount of the fi employed. Fixed costs do not vary with either expansion or contraction in output. Th to be incurred by a firm even output is zero. Even if the firm close down its operatio time temporarily in the short run, but remains in business, these cost have to be b Hence, these costs are independent of output and are referred to as unavoidable contra

Prof. Marshall called fixed cost as supplementary costs. They include suc contractual rent payments, interest on capital borrowed, insurance premium, depre maintenance allowance, administrative expenses like manager’s salary or sala permanent staff, property and business taxes, license fees, etc. They are called as costs because these costs are to incurred whether there is production or not. These c be distributed on each units of output produced by a firm. Hence, they are called costs. Variable Costs: The costs corresponding to variable factors are described costs. These costs are incurred on raw materials, ordinary labour, transport, power, etc, which directly vary in the short runs.

Variable costs are directly and proportionately increases or decreases with t output. If a firm shut down for some times in the short run; then it will not use t factors of production and with will not therefore incurs any variable costs. Variable Master your semester Scribd  Read Free Foron 30this Days Sign up to vote title  incurred only when some amount of output is produced. Total variable cost increas & The New York Times Not useful  Useful  anytime. level of increase in the level of production and vice-versa. Cancel Prof. Marshall called var Special offer for students: Only $4.99/month. as prime costs or direct costs because the volume of output produced by a firm depen

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Q.5 Discuss Marris Growth Maximization model and show how it is differen Sales maximization model?

Ans: Profit maximization is traditional objective of a firm. Sales maximization o explained by Prof. Boumal. On similar lines, Prof. Marris has developed another growth maximization model in recent years. It is a common factor to observe that aims at maximizing its growth rate as this goal would answer many of the objectives Marris points out that a firm has to maximize its balanced growth rate over a period o

Marris assumes that the ownership and control of the firm is in the hands of of people, i.e. owner and managers. He further points out that both of them have two goals. Managers have a utility function in which the amount of salary, status, posit prestige and security of job etc are the most import variable where as in case o concerned about the size of output, volume of profits, market shares and sales maxim

Utility function of the manager and that the owner are expressed in the followi Uo= f [size of output, market share, volume of profit, capital, public esteem etc.] Um= f [salaries, power, status, prestige, job security etc.]

In view of Marris the realization of these two functions would depend on the size o Larger the firm, greater would be the realization of these functions and vice-versa. firm according to Marris depends on the amount of corporate capital which inc Master your semester with Scribd  volume of the asset, inventory level, cash reserve etc.Read Heupfurther points Free Foron 30this Days Sign to vote titleout that the  & The New Timesthe rate of growth of the firm Not growth useful  Useful  always aimYork at maximizing rather than in abso Cancel anytime. Special the offer firms. for students: Only $4.99/month. Generally managers like to stay in a grouping firm. Higher growth rate

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maximization of sales does not mean maximization of physical sales but maximizat sales revenue. Hence, the managers are more interested in increasing sales rather t The basic philosophy is that when sales are maximized automatically profits of th would also go up. Hence, attention is diverted to increase the sales of the compan years in the context of highly competitive market. How Profit Maximization model differs from Sales Maximization model: The sale maximization model differs on the following grounds: •

Emphasis is given on maximizing sales rather than profit.

•

Increase the competitive and operational ability of the company.

•

The amount of slack earning and salaries of the top managers are directly lin

•

It helps in enhancing the prestige and reputation of top management, distri dividends to share holders and increases the wage of the workers and k happy.

•

The financial and other lending institutions always keep a watch on the sales a firm as it is an indication of o f financial health of the firm.

Q.6 Explain Eyour xplain semester how fiscal fiscal p olicy olwith icy is used t o achieve economic economic sta bility? Master Scribd  Read Free Foron 30this Days Sign up to vote title  & The York Timesa stable economic condition,fiscal Useful policy usefulto play a p Ans:New In order to achieve  Not has Special constructive offer for students:role Only $4.99/month. both in developed

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and developing nations. The specific role to be

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3. Profit earning capacity of public sector units are to be raise substantially financial resources. 4. The government should borrow more money both in the country and country.

5. Higher the rate of interest are to be offered for government bonds and se •

To act as an investor: Mere mobilization of financial resources is not an end should result in the creation of real resources which are more important in a the growth process. Rapid economic growth depends upon the volume of Hence, fiscal policies have to be ensuring higher volume of investment in b and public sectors.

•

To act as price stabilizer: price stability is of paramount of importance in an Extreme levels of both inflation and deflation would disrupt and disturb the n regular working of an economic system. This would come in the way of persistent growth. Hence all measures are to be taken to check these two situations so as to create necessary congenial atmosphere to prepare the back rapid economic growth.

To act a s an economic economic stabilizer: stabilizer: Price stability would create the necessary b for over all economics stability. Upswing and downswing in the level of Master your semester withIfScribd activities are to be avoided. an economy is subject to frequent fluctuation in  Read Free Foron 30this Days Sign up to vote title  tradeYork cycle, Times certainly, it would undermine and disturb theNotgrowth process. & The New useful  Useful  Cancel anytime. would Only come in the way of persistent and consistent growth in a country. Special offer for students: $4.99/month. measure to be taken to ensure economic stability. •

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•

To act as growth promoter: The basic objective of any economic policy i higher economic growth rates. This is possible when there is higher nation investment, production, employment and income. Hence, fiscal policy is to b in such a manner so as to promote higher growth in an economy.

•

To act as in come redistribute: Fiscal policy has to minimize inequalities distributive justice in an economy. This is possible when a rational taxation expenditure policy is adopted. More money is collected from richer section of through various imaginative taxation policies and a larger amount of money is in favor of poorer sections of the society. Thus, inequality is to be redu minimum.

•

To act as stimulator of living standards of people: the final objective is level of living standards of the people. This is possible when there is hig income and employment leading to higher purchasing power in the hands o man. Hence, fiscal policy should help in creating more wealth in the economy economic prosperity, then it is possible to have a satisfactory, contended an life.

Thus, fiscal policy has to play a major role in promoting economic growth in a count


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MB0042-MBA-1st Sem 2011 Assignment Managerial Economics

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