Semester 1 Examination paper
IIBM Institute of Business Management
IIBM Institute of Business Management
Semester-1 Examination Paper MM.100
Managerial Economics
Section A: Objective Type (30 marks)
This section consists of multiple choice questions and Short notes.
Answer all the questions.
Part one questions carry 1 mark each & Part Two questions carry 5 marks each.
Part one:
Multiple choices:
1) Economists have classified input as
a. Timeless
b. landless
c. labourless
d. all the above
2) ∑Pi=………where Pi is the probability of certain task.
a. Not defined
b. 1
c. 0
d. It will depend on the number of Pi values we are taking for summation.
3) Slope at x=2 for the given curve y=3x3+2x be
a. 26
b. 38
c. 36
d. 18
4) For a vertical demand curve the elasticity will be
a. 0
b. 1
c. Between 0 and 1
d. ∞
5) The difference between price and average variable cost is defined as
a. Loss contribution
b. Profit contribution
c. Expectations
d. Market contribution
Semester 1 Examination paper
IIBM Institute of Business Management
6) For an industry with ‘n’ firms the total equilibrium o/p for a Cournot oligopoly with Q0 as o/p
from perfect competitive market, is given by
a. Q0(n+1)/n
b. Q0n/(n+1)
c. (n+1)n/Q0
d. (n+1)/(nQ0)
7) Game theory was designed
a. To create situation where individual and organization have conflicting objectives for
competitive growth.
b. To create situation where organization and organization have conflicting objectives
c. To evaluate the condition of the market
d. To evaluate situations where individual and organization have conflicting objectives.
8) The firms may be able to escape from ‘Prisoner’s Dilemma’ if the action is
a. Repetitive
b. Non repetitive
c. Sequential
d. No dependence on the type of action
9) Which is not the Property of Indifference curve
a. Convex to the origin
b. Have positive slope
c. Indicate lower level of satisfaction
d. Do not intersect nor are they tangent to one another
10) Standard deviation is a measure of
a. Sink of price
b. Rise of price
c. Slope of demand curve
d. Risk
Part Two:
1. Define ‘Arc Elasticity’.
2. Explain the law of ‘Diminishing marginal returns’.
3. What is ‘Prisoner’s Dilemma’, a non cooperative game?
4. What is ‘Third degree Discrimation’?
END OF SECTION A
Semester 1 Examination paper
IIBM Institute of Business Management
Section B: Caselets (40 marks)
This section consists of Caselets.
Answer all the questions.
Each caselet carries 20 marks.
Detailed information should form the part of your answer (Word limit 200 to 250 words).
Caselet 1
Mukand Limited, suffered a heavy setback during the first half of 1996 (April-September), on
account of the sluggishness in the international and domestic markets. Further, the heavy interest
burden and the depressed rupee in terms of the dollar put pressure on the bottomline. It is interesting
to see whether the Company will maintain the growth rate achieved during the year 1995-96 in the
year 1996-97 and pay the same dividend to its shareholders. Considering the financial results for the
first half, the continuation of the liquidity crunch as well as the adverse market conditions will have
an impact on the working. It will be difficult for the Company management to announce the same
returns to the equity holders on an increased equity capital during the year 1996-97.The net profit of
the Company dropped by 40 percent to Rs 9.64 crores for the half year ending September 30, 1996,
from Rs 16.11 crores owing to the planned production cuts as well as the higher finance costs. The
sales also declined by nearly 14 percent to Rs 417.21 crores from Rs 483.33 crores earlier. The lower
sales helped the Company save on its operational costs by nearly one percent. The interest costs,
however, were higher at Rs 28.30 crores (Rs 24.41 crores) which led to the gross profit dipping by
22.34 percent to Rs 18.56 crores (Rs 23.90 crores).The Company made a marginally higher
depreciation provision of Rs 8.92 crores (Rs 7.79 crores) but, like the earlier period, did not make the
tax provisions and the tax liability would be determined at the end of the year.
The turnover of the steel plant had reduced due to the sluggishness in the international and
domestic markets. The massive increase in the power tariff, increase in the cost of inputs and the
relatively higher interest rates put further pressure on the profit margins. The Company has now
decided to curtail the production of the low margin products to improve its profitability. The
performance of the MKL for the 12-months period that ended in March 1996, was also the Company
managed to record a 21.56 per cent improvement in turnover at Rs 109.25 crores. The contributions
from the steel foundry of the company, the machine building and the machine tools division were
almost stagnant. The high operational costs, the increasing costs of the imported inputs, the
depreciation of the India rupee and other incremental cost of the imported inputs, the depreciation of
the operational level. The operating margins dipped from 9.73 percent to 8.8 percent. The net profit at
Rs 44.09 crores increased by 25 percent compared with Rs 35.15 crores for the corresponding 12
months last year. The sales value of the rolled products was Rs 743.70 crores as against Rs 597 crores
in the previous year. The output of the rolled products for the year 1995-96 was 212698 tonnes as
against the output of the previous year, of 197651 tonnes, the increase being mainly on account of
the larger production from the wire rod mill.
The sales of the steel foundry during the year 1995-96 were Rs 45.6 crores as against Rs 33.4
crores in the previous year. The production of steel and alloy casting was 8657 tonnes as against 7767
tonnes in the previous year. The capacity utilization continued to be low due to the stoppage of direct
purchases of bogies and couplers by the Indian Railways. According to the new policy, the Railways
has started procuring complete wagons stock from the wagon builders who have started placing the
placing the orders for bogies and couplers in the latter part of the year. The exports-direct, indirect
Semester 1 Examination paper
IIBM Institute of Business Management
and deemed of the Company and the other income in foreign exchange were worth Rs 160.9 crores
as against Rs 84 crores in the year 1994-95 an increase of 90 percent. The company had set an export
target of Rs 125 crores, and surpassed it by 28 percent. The foreign exchange outgo during the year
1995-96 was Rs 227.3 crores compared to Rs 213 crores in the previous year to Rs 66.4 crores during
the year on account of a substantial increase in the exports and import substitutions. During the year
1995-96, loans and advances of the Mukand have also increased by about 66.73 percent. It has given
loans worth Rs 15.25 to its two subsidiaries, Mukand Global Finance and Mukand McNaily
Wellman. MKL has also taken a credit of Rs 29.50 crores, which is yet to be received for the part sale
of its property in Kurla, for which the Company is involved in a dispute with the Brihanmumbai
Municipal Corporation (BMC). Besides, it has Rs 6.1 crores locked up in the Bombay Forgings a
company which has been referred to the BIFR.
According to the rehabilitation scheme drawn up by the BIFR, Mukand is required to fund
the sick unit for a gross amount of Rs 7.5 crores, which, interestingly, cannot be recovered without
the approval of some of the financial institutions. At the last Annual General Meeting, the promoters
of Mukand have sought an idenfinite extension from the Board of the Company to make the balance
payment of Rs 41.26 crores on the 22.59 lakh preferential shares issued to them in the year 1994. The
last date for making the payment was August 1996. The extension sought was due to the falling prices
of the Company scrips in the stock market and the tight liquidity situation faced by the promoters.
The company made a private placement of the equity shares, chiefly to the foreign institutional
investors in late 1994 to garner over Rs 100 crores. To neutralize the equity dilution from the private
placement, the company issued 22.59 lakhs warrants to the prompters, which were to be converted
into the fully paid up shares of Rs 10 each by August 1996, at a premium of Rs 233.50 per share. The
steep fall in the share price of the company in the last six months and the huge difference created
thereby between the allotment price of Rs 243.50 per share and the market price seem to have
precipitated the decision by the promoters.
Mukand was also in talks with some Japanese Companies for equity and technical know how
participation in the 1.25 million tonne Karnataka Steel project. Mukand will hold 25 to 30 percent
equity in the Joint Venture Company implementing this project. For the future, a lack of captive raw
material sources could continue to put pressure on the margins. Besides, the spinning off the Machine
Building Division could also result in lower revenues for the financial year 1996-97.
1. Are the problems faced by the Company periodic in nature, and when would the bad period over
the problems cease to persist?
2. Is there a case for shifting the business focus from the Indian market to export to foreign
countries?
3. Is there a case for restructuring and the business process re-engineering so that certain problems
and its impact are under control?
4. What would you recommend as a mission and goal to the Company?
Caselet 2
The high cost of television receivers is mainly due to scale of production and cost of the input raw
materials. The degree of automation and efficiency and technology are additional factors which
determine the cost of components. In India, the input materials are subject to very high customers
duties. Because of the split up of licences presumably with a view to avoiding a monopoly
situation, the scale of operation are far lower in India than in countries overseas. Small volume of
production has engendered the use of manual techniques of production which pushes up costs.
Semester 1 Examination paper
IIBM Institute of Business Management
Though wages may be comparatively lower in India than in Western countries, the industry in India is
plagued with lower productivity, labour unrest and power shortage. These factors push up the cost
substantially. The electronic components industry, in general, and the picture tube industry, in
particular, will need protection by way of import duties. The protection being given to the electronic
components industry is in no way different from the treatment according to other engineering
industry. It would be impossible to grow in India an indigenous electronic components industry
without protection unless all inputs are available at international prices and unless production is
geared to international levels of operation. As electronic components are the building blocks of the
electronics industry, such growth should be nurtured. A 51-cm TV receiver is available in the
Western markets at about US $90. The cost of components in a set would be of the order of US $60,
including the cost of the picture tube. Balance of US $30 covers assembly, testing, marketing,
financing and profit. In India, the build-up of the costs is as follows: Price of components including
the picture tube (Rs. 1,285 + Rs. 80 towards freight and mortality) = Rs. 1,365,00; cost of
manufacture and marketing including profit Rs. 235.00; Dealer’s commission is Rs. 200; Excise on
Rs. 1,600 is Rs. 84; Sales Tax (10 percent ) is Rs. 184.40; total Rs. 2,072.40. This represents the
cheaper model available today. In Western countries the cost of assembly, testing, financing and
profit. Including dealer’s commission, amount to only US $30 or approximately Rs. 250. The cost of
similar operation in India escalates to Rs. 435 in spite of the so-called cheap labour. A cost
comparison of components available to the television industry in India as against what television
manufacturers in Western countries are able to obtain is given in the Table below:
CASES AND SHORT CASES
Item Western Indian
Difference
Prices prices
Rs. Rs.
Picture Tube $18.00 (Rs. 162.00) 405.00 243.00
Tuner $ 4.00 (Rs. 36.00) 125.00 89.00
Cabinet $ 5.00 (Rs. 45.00) 125.00 80.00
Deflection Components $ 3.50 (Rs.31.50) 100.00 68.50
Semi-conductors $ 6.00 (Rs. 54.00) 250.00 195600
Passive components $ 20.00 (Rs. 180.00) 180.00 -
Other components $ 8.00 (Rs. 72.00) 100.00 28.00
Total $ 64.00 (Rs. 580.50) 1,285.00 704.50
Notes: 1. Assumed US $ 1 =Rs.9.
2. Accessories like antenna and installation are extra and cost nearly Rs. 200 in India.
Semester 1 Examination paper
IIBM Institute of Business Management
It will be seen that apart from the picture tube the other components are also expensive.
A mass produced plastic cabinet will be available in western countries to the TV receivers industry at
about US $ 5 whereas a wooden cabinet produced in India costs as much as Rs. 125. There is a
feeling that as the wooden cabinets are made by the small-scale industry, it would be advisable to
stick to this approach. Cost reduction would be difficult with such approaches. Again, in the case of
tuners and deflection components, the Indian price is nearly 3 to 4 times the price of similar
components available overseas. Semi-conductors are also expensive. Therefore, it is stated that it
would not be appropriate to single out the picture tube as the main culprit leading to the high cost of
components for a television set. It would be necessary to look at the cost structure of the electronic
components industry in general for the answer. It should be possible to product a moulded cabinet in
India provided all the manufacturers join together as a consortium set up the necessary facilities or an
MNC who has considerable experience in the field is asked to produce the cabinets for supply to the
rest of the industry. If we stick to the wooden cabinet, it may protect the small-scale industry at the
expense of the consumers. Unless the scales of operations for the other components increase and
unless input raw materials are made available at international prices, it would be difficult for the
electronic components industry to bring down the price to international level.
One may argue why a high cost electronic components industry should be supported in India, and
take the view that it may be advisable to import the components. The suggestion may be valid when
we are flush with foreign exchange. The situation was quite different a few years back. In any case,
for the healthy growth of the electronics industry it is essential that the building bricks-electronic
components – are made in the country. Industry’s attempt should be towards a policy which enables
components to be made economically and it is essential that all steps are taken to look into the
difficulties of the electronic components industry and remedy the same. The glass shell for the picture
tube is being imported and the current c.i.f. price is about Rs. 80. An import duty of 75 percent pushes
up the cost to Rs. 140. Taking damage in transit into account, the price per glass shell comes to Rs.
150. There is a freight element of Rs. 23 in the c.i.f. cost of Rs. 80. Duty is payable on freight and the
element of freight cost plus duty amounts to Rs. 40 out of the total cost of Rs. 150.
1. How long can an industry sustain on protection?
2. What is the impact of incidental services like assembly, testing, marketing, etc. on the total cost?
3. Would you agree to the suggestion for a complete changeover to wooden cabinet?
4. Would it be desirable to import the components rather than make them in India?
END OF SECTION B
Semester 1 Examination paper
IIBM Institute of Business Management
Section C: Applied Theory (30 marks)
This section consists of Long Questions.
Answer all the questions.
Each question carries 15 marks.
Detailed information should form the part of your answer (Word limit 150 to 200 words).
1) Free trade promotes a mutually profitable regional division of labour, greatly enhances the
potential real national product of all nations and makes possible higher standards of living all
over the globe.”Explain and critically examine the statements.
2) What role does a decision tree play in business decision-making? Illustrate the choice
between two investment projects with help of a decision tree assuming hypothetical
conditions about the states of nature, probability distribution, and corresponding pay-offs.
END OF SECTION C
--------------------------------------------------------------***-------------------------------------------------------------
IIBM Institute of Business Management
IIBM Institute of Business Management
Semester-1 Examination Paper MM.100
Managerial Economics
Section A: Objective Type (30 marks)
This section consists of multiple choice questions and Short notes.
Answer all the questions.
Part one questions carry 1 mark each & Part Two questions carry 5 marks each.
Part one:
Multiple choices:
1) Economists have classified input as
a. Timeless
b. landless
c. labourless
d. all the above
2) ∑Pi=………where Pi is the probability of certain task.
a. Not defined
b. 1
c. 0
d. It will depend on the number of Pi values we are taking for summation.
3) Slope at x=2 for the given curve y=3x3+2x be
a. 26
b. 38
c. 36
d. 18
4) For a vertical demand curve the elasticity will be
a. 0
b. 1
c. Between 0 and 1
d. ∞
5) The difference between price and average variable cost is defined as
a. Loss contribution
b. Profit contribution
c. Expectations
d. Market contribution
Semester 1 Examination paper
IIBM Institute of Business Management
6) For an industry with ‘n’ firms the total equilibrium o/p for a Cournot oligopoly with Q0 as o/p
from perfect competitive market, is given by
a. Q0(n+1)/n
b. Q0n/(n+1)
c. (n+1)n/Q0
d. (n+1)/(nQ0)
7) Game theory was designed
a. To create situation where individual and organization have conflicting objectives for
competitive growth.
b. To create situation where organization and organization have conflicting objectives
c. To evaluate the condition of the market
d. To evaluate situations where individual and organization have conflicting objectives.
8) The firms may be able to escape from ‘Prisoner’s Dilemma’ if the action is
a. Repetitive
b. Non repetitive
c. Sequential
d. No dependence on the type of action
9) Which is not the Property of Indifference curve
a. Convex to the origin
b. Have positive slope
c. Indicate lower level of satisfaction
d. Do not intersect nor are they tangent to one another
10) Standard deviation is a measure of
a. Sink of price
b. Rise of price
c. Slope of demand curve
d. Risk
Part Two:
1. Define ‘Arc Elasticity’.
2. Explain the law of ‘Diminishing marginal returns’.
3. What is ‘Prisoner’s Dilemma’, a non cooperative game?
4. What is ‘Third degree Discrimation’?
END OF SECTION A
Semester 1 Examination paper
IIBM Institute of Business Management
Section B: Caselets (40 marks)
This section consists of Caselets.
Answer all the questions.
Each caselet carries 20 marks.
Detailed information should form the part of your answer (Word limit 200 to 250 words).
Caselet 1
Mukand Limited, suffered a heavy setback during the first half of 1996 (April-September), on
account of the sluggishness in the international and domestic markets. Further, the heavy interest
burden and the depressed rupee in terms of the dollar put pressure on the bottomline. It is interesting
to see whether the Company will maintain the growth rate achieved during the year 1995-96 in the
year 1996-97 and pay the same dividend to its shareholders. Considering the financial results for the
first half, the continuation of the liquidity crunch as well as the adverse market conditions will have
an impact on the working. It will be difficult for the Company management to announce the same
returns to the equity holders on an increased equity capital during the year 1996-97.The net profit of
the Company dropped by 40 percent to Rs 9.64 crores for the half year ending September 30, 1996,
from Rs 16.11 crores owing to the planned production cuts as well as the higher finance costs. The
sales also declined by nearly 14 percent to Rs 417.21 crores from Rs 483.33 crores earlier. The lower
sales helped the Company save on its operational costs by nearly one percent. The interest costs,
however, were higher at Rs 28.30 crores (Rs 24.41 crores) which led to the gross profit dipping by
22.34 percent to Rs 18.56 crores (Rs 23.90 crores).The Company made a marginally higher
depreciation provision of Rs 8.92 crores (Rs 7.79 crores) but, like the earlier period, did not make the
tax provisions and the tax liability would be determined at the end of the year.
The turnover of the steel plant had reduced due to the sluggishness in the international and
domestic markets. The massive increase in the power tariff, increase in the cost of inputs and the
relatively higher interest rates put further pressure on the profit margins. The Company has now
decided to curtail the production of the low margin products to improve its profitability. The
performance of the MKL for the 12-months period that ended in March 1996, was also the Company
managed to record a 21.56 per cent improvement in turnover at Rs 109.25 crores. The contributions
from the steel foundry of the company, the machine building and the machine tools division were
almost stagnant. The high operational costs, the increasing costs of the imported inputs, the
depreciation of the India rupee and other incremental cost of the imported inputs, the depreciation of
the operational level. The operating margins dipped from 9.73 percent to 8.8 percent. The net profit at
Rs 44.09 crores increased by 25 percent compared with Rs 35.15 crores for the corresponding 12
months last year. The sales value of the rolled products was Rs 743.70 crores as against Rs 597 crores
in the previous year. The output of the rolled products for the year 1995-96 was 212698 tonnes as
against the output of the previous year, of 197651 tonnes, the increase being mainly on account of
the larger production from the wire rod mill.
The sales of the steel foundry during the year 1995-96 were Rs 45.6 crores as against Rs 33.4
crores in the previous year. The production of steel and alloy casting was 8657 tonnes as against 7767
tonnes in the previous year. The capacity utilization continued to be low due to the stoppage of direct
purchases of bogies and couplers by the Indian Railways. According to the new policy, the Railways
has started procuring complete wagons stock from the wagon builders who have started placing the
placing the orders for bogies and couplers in the latter part of the year. The exports-direct, indirect
Semester 1 Examination paper
IIBM Institute of Business Management
and deemed of the Company and the other income in foreign exchange were worth Rs 160.9 crores
as against Rs 84 crores in the year 1994-95 an increase of 90 percent. The company had set an export
target of Rs 125 crores, and surpassed it by 28 percent. The foreign exchange outgo during the year
1995-96 was Rs 227.3 crores compared to Rs 213 crores in the previous year to Rs 66.4 crores during
the year on account of a substantial increase in the exports and import substitutions. During the year
1995-96, loans and advances of the Mukand have also increased by about 66.73 percent. It has given
loans worth Rs 15.25 to its two subsidiaries, Mukand Global Finance and Mukand McNaily
Wellman. MKL has also taken a credit of Rs 29.50 crores, which is yet to be received for the part sale
of its property in Kurla, for which the Company is involved in a dispute with the Brihanmumbai
Municipal Corporation (BMC). Besides, it has Rs 6.1 crores locked up in the Bombay Forgings a
company which has been referred to the BIFR.
According to the rehabilitation scheme drawn up by the BIFR, Mukand is required to fund
the sick unit for a gross amount of Rs 7.5 crores, which, interestingly, cannot be recovered without
the approval of some of the financial institutions. At the last Annual General Meeting, the promoters
of Mukand have sought an idenfinite extension from the Board of the Company to make the balance
payment of Rs 41.26 crores on the 22.59 lakh preferential shares issued to them in the year 1994. The
last date for making the payment was August 1996. The extension sought was due to the falling prices
of the Company scrips in the stock market and the tight liquidity situation faced by the promoters.
The company made a private placement of the equity shares, chiefly to the foreign institutional
investors in late 1994 to garner over Rs 100 crores. To neutralize the equity dilution from the private
placement, the company issued 22.59 lakhs warrants to the prompters, which were to be converted
into the fully paid up shares of Rs 10 each by August 1996, at a premium of Rs 233.50 per share. The
steep fall in the share price of the company in the last six months and the huge difference created
thereby between the allotment price of Rs 243.50 per share and the market price seem to have
precipitated the decision by the promoters.
Mukand was also in talks with some Japanese Companies for equity and technical know how
participation in the 1.25 million tonne Karnataka Steel project. Mukand will hold 25 to 30 percent
equity in the Joint Venture Company implementing this project. For the future, a lack of captive raw
material sources could continue to put pressure on the margins. Besides, the spinning off the Machine
Building Division could also result in lower revenues for the financial year 1996-97.
1. Are the problems faced by the Company periodic in nature, and when would the bad period over
the problems cease to persist?
2. Is there a case for shifting the business focus from the Indian market to export to foreign
countries?
3. Is there a case for restructuring and the business process re-engineering so that certain problems
and its impact are under control?
4. What would you recommend as a mission and goal to the Company?
Caselet 2
The high cost of television receivers is mainly due to scale of production and cost of the input raw
materials. The degree of automation and efficiency and technology are additional factors which
determine the cost of components. In India, the input materials are subject to very high customers
duties. Because of the split up of licences presumably with a view to avoiding a monopoly
situation, the scale of operation are far lower in India than in countries overseas. Small volume of
production has engendered the use of manual techniques of production which pushes up costs.
Semester 1 Examination paper
IIBM Institute of Business Management
Though wages may be comparatively lower in India than in Western countries, the industry in India is
plagued with lower productivity, labour unrest and power shortage. These factors push up the cost
substantially. The electronic components industry, in general, and the picture tube industry, in
particular, will need protection by way of import duties. The protection being given to the electronic
components industry is in no way different from the treatment according to other engineering
industry. It would be impossible to grow in India an indigenous electronic components industry
without protection unless all inputs are available at international prices and unless production is
geared to international levels of operation. As electronic components are the building blocks of the
electronics industry, such growth should be nurtured. A 51-cm TV receiver is available in the
Western markets at about US $90. The cost of components in a set would be of the order of US $60,
including the cost of the picture tube. Balance of US $30 covers assembly, testing, marketing,
financing and profit. In India, the build-up of the costs is as follows: Price of components including
the picture tube (Rs. 1,285 + Rs. 80 towards freight and mortality) = Rs. 1,365,00; cost of
manufacture and marketing including profit Rs. 235.00; Dealer’s commission is Rs. 200; Excise on
Rs. 1,600 is Rs. 84; Sales Tax (10 percent ) is Rs. 184.40; total Rs. 2,072.40. This represents the
cheaper model available today. In Western countries the cost of assembly, testing, financing and
profit. Including dealer’s commission, amount to only US $30 or approximately Rs. 250. The cost of
similar operation in India escalates to Rs. 435 in spite of the so-called cheap labour. A cost
comparison of components available to the television industry in India as against what television
manufacturers in Western countries are able to obtain is given in the Table below:
CASES AND SHORT CASES
Item Western Indian
Difference
Prices prices
Rs. Rs.
Picture Tube $18.00 (Rs. 162.00) 405.00 243.00
Tuner $ 4.00 (Rs. 36.00) 125.00 89.00
Cabinet $ 5.00 (Rs. 45.00) 125.00 80.00
Deflection Components $ 3.50 (Rs.31.50) 100.00 68.50
Semi-conductors $ 6.00 (Rs. 54.00) 250.00 195600
Passive components $ 20.00 (Rs. 180.00) 180.00 -
Other components $ 8.00 (Rs. 72.00) 100.00 28.00
Total $ 64.00 (Rs. 580.50) 1,285.00 704.50
Notes: 1. Assumed US $ 1 =Rs.9.
2. Accessories like antenna and installation are extra and cost nearly Rs. 200 in India.
Semester 1 Examination paper
IIBM Institute of Business Management
It will be seen that apart from the picture tube the other components are also expensive.
A mass produced plastic cabinet will be available in western countries to the TV receivers industry at
about US $ 5 whereas a wooden cabinet produced in India costs as much as Rs. 125. There is a
feeling that as the wooden cabinets are made by the small-scale industry, it would be advisable to
stick to this approach. Cost reduction would be difficult with such approaches. Again, in the case of
tuners and deflection components, the Indian price is nearly 3 to 4 times the price of similar
components available overseas. Semi-conductors are also expensive. Therefore, it is stated that it
would not be appropriate to single out the picture tube as the main culprit leading to the high cost of
components for a television set. It would be necessary to look at the cost structure of the electronic
components industry in general for the answer. It should be possible to product a moulded cabinet in
India provided all the manufacturers join together as a consortium set up the necessary facilities or an
MNC who has considerable experience in the field is asked to produce the cabinets for supply to the
rest of the industry. If we stick to the wooden cabinet, it may protect the small-scale industry at the
expense of the consumers. Unless the scales of operations for the other components increase and
unless input raw materials are made available at international prices, it would be difficult for the
electronic components industry to bring down the price to international level.
One may argue why a high cost electronic components industry should be supported in India, and
take the view that it may be advisable to import the components. The suggestion may be valid when
we are flush with foreign exchange. The situation was quite different a few years back. In any case,
for the healthy growth of the electronics industry it is essential that the building bricks-electronic
components – are made in the country. Industry’s attempt should be towards a policy which enables
components to be made economically and it is essential that all steps are taken to look into the
difficulties of the electronic components industry and remedy the same. The glass shell for the picture
tube is being imported and the current c.i.f. price is about Rs. 80. An import duty of 75 percent pushes
up the cost to Rs. 140. Taking damage in transit into account, the price per glass shell comes to Rs.
150. There is a freight element of Rs. 23 in the c.i.f. cost of Rs. 80. Duty is payable on freight and the
element of freight cost plus duty amounts to Rs. 40 out of the total cost of Rs. 150.
1. How long can an industry sustain on protection?
2. What is the impact of incidental services like assembly, testing, marketing, etc. on the total cost?
3. Would you agree to the suggestion for a complete changeover to wooden cabinet?
4. Would it be desirable to import the components rather than make them in India?
END OF SECTION B
Semester 1 Examination paper
IIBM Institute of Business Management
Section C: Applied Theory (30 marks)
This section consists of Long Questions.
Answer all the questions.
Each question carries 15 marks.
Detailed information should form the part of your answer (Word limit 150 to 200 words).
1) Free trade promotes a mutually profitable regional division of labour, greatly enhances the
potential real national product of all nations and makes possible higher standards of living all
over the globe.”Explain and critically examine the statements.
2) What role does a decision tree play in business decision-making? Illustrate the choice
between two investment projects with help of a decision tree assuming hypothetical
conditions about the states of nature, probability distribution, and corresponding pay-offs.
END OF SECTION C
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