GM04
Managerial Economics
Assignment - I
Assignment Code: 2015GM04A1 Last Date of Submission: 15th May 2015
Maximum Marks: 100
Attempt all the questions. All the questions are compulsory and carry equal marks.
Section-A
1. What are the key points in short run production functions that delineate the three stages of production? Explain the relationship between the law of diminishing return and three stages of production.
2. “Because of economics of scale, it is sometimes more cost effective for a firm to operate a large plant at less than maximum efficiency than a small plant at maximum efficiency”. Do you agree with this statement? Explain.
3. Explain the following concepts with suitable example.
(a) Opportunity Cost
(b) Discounting principle
4. “Managerial economics involves use of economic analysis to make business decisions involving the best use of a firm’s scarce resources” Explain the statement with suitable example.
Section-B
Case Study
A travel company has hired a management consulting company to analyze demand in 26 regional markets for one of its major products: a guided tour to a particular country. The consultant uses data to estimate the following equation:
Q = 1,500 = 4P + 5A+ 10I +3PX
where Q = amount of the product demanded
P = price of the product in dollars
A= advertising expenditures in thousands of dollars.
I = income in thousands of dollars
PX = price of some other travel products offered by a competing travel company
Questions:
a. Calculate the amount demanded for this product using the following data:
P = $400
A= $20,000
I = $15,000
PX = $500 (5)
b. Suppose the competitor reduced the price of its travel products to $400 to match the price of this firm’s product. How much would this firm have to increase its advertising in order to counteract the drop in its competitor’s price? Would it be worth it for them to do so? Explain. (10)
c. What other variables might be important in helping estimate the demand for this travel product? (5)
GM 04
Managerial Economics
Assignment - II
Assignment Code: 2015GM04A2 Last Date of Submission: 15th May 2015
Maximum Marks: 100
Attempt all the questions. All the questions are compulsory and carry equal marks.
Section-A
1. What is meant by monopolistic competition? Is product differentiation an outcome of monopolistic competition or vice-versa? Discuss the behavior of the firm under monopolistic competition
2. What is Oligopoly? Explain how price & output decisions are taken under the conditions of collusive
Oligopoly.
3. Explain why the demand curve facing a perfectly competitive firm is assumed to be perfectly elastic.
4. Enumerate various models of managerial and behavioural theory. Explain in detail Marris
model of managerial economics.
Section-B
Case Study
Govt Moves to overhaul coal sector
The government on Wednesday moved a step closer to restructure the coal sector with a proposal that could potentially benefit the power companies that have been strained by the scarcity and poor quality of coal supplied to them.
A group of ministers (GoM) signed off on a plan to set up a coal regulator and to create a “pass-through” mechanism that would see higher costs from imported coal being passed on as increased tariffs.
The proposal is now expected to be presented to the Union cabinet for its approval on 7 June 2013. “We have been able to achieve traction and closure, pretty much, with regard to the coal regulator Bill, in terms of the formulation of different clauses and finality of its structure,” said minister of state for power Jyotiraditya Scindia. “Similarly, with regard to the pass-through mechanism for increasing supply of coal from external sources to the power sector, we have achieved closure on that mechanism structure as well.”
The proposed coal regulator will be primarily entrusted with the task of monitoring testing, quality, supply and grading of coal, but will not regulate pricing. It will, however, have an attached appellate body that will adjudicate on disputes between coal suppliers and buyers, including some pricing issues.
Finance minister P. Chidambaram said that pricing of coal would be kept out of the ambit of the coal regulator, and that it would be empowered to resolve disputes, including those arising out of fuel supply agreements with power and other downstream producers.
“There is an agreement that pricing must be left to the producer of coal, but the regulator will have powers to adjudicate on disputes relating to price, quality, supplies. All disputes will be adjudicated with the regulator and then there will be an appellate authority,” PTI had cited Chidambaram as saying.
Scindia said the proposed appellate body would have some control over pricing.
“We certainly have given a certain amount of authority to the coal regulator in certain very specified cases,” he said in response to a question if regulation of pricing was within its ambit. Besides pricing, the new body will be entrusted with the regulation of testing, quality, supply and grading of coal, Scindia said.
“It (the proposed regulator) takes into account the interest of all stakeholders within the industry, the suppliers of coal as well as the buyers of coal,” he said. “It balances and protects the interest of all stakeholders and, at the same time, gives a very judicious balance to the regulatory authority to be able to supervise the supply and demand of coal in the country.”
Both the proposals—one on the regulator and the appellate body and the other on the price pass-through mechanism—are likely to be taken up by the cabinet on 7 June, a top coal ministry official said.
Analysts and senior coal industry executives are, however, not convinced about the effectiveness of a coal regulator, especially if pricing is kept out of its remit. For one, stateowned Coal India Ltd (CIL) is a near-monopoly producer of the fuel. “It will be a nightmare, even if it is given full pricing powers. What will you regulate? It is not just a case of CIL being a monopoly player. The cost of production of varying grades of coal from different mines is different, so imagine how many permutations and combinations there will be to regulate,” said a senior CIL official who did not want to be identified.
Chintan J. Mehta, an analyst with Mumbai-based Sunidhi Securities and Finance Ltd, said that without the authority to regulate pricing, the new body will be ineffective. “Although CIL has a monopoly over pricing, a regulator, if it had the power, could have raised an objection, thereby compelling the company into changing prices. That cannot happen now,” he said.
“Having said that, various non-pricing processes will be streamlined and become transparent, as the regulator will be an independent non-political entity,” Mehta added.
On 22 April, the cabinet had rejected a proposal to pool coal prices, which is the averaging out of cheaper domestic coal with costlier imports as a means of helping those who have to depend on supplies from overseas. Instead, it had asked a ministerial panel to set up a mechanism to pass on the incremental costs due to costlier imported coal to power producers.
CIL, the world’s largest miner of coal, supplies 85% of the domestic coal demand. It has been unable to meet growing demand, especially from the power sector, and hence has been resorting to imports to meet supply obligations.
While a pass-through price structure will increase electricity tariffs for consumers, it could potentially help restore investor interest in the power sector.
Source: Article form Live Mint published: Tue, Nov 27,2012
Questions:
1. What steps have been taken by government to overhaul coal sector? (5)
2. How effective coal regulator would be to avoid monopoly situation in coal industry in case pricing is kept out of its remit? (5)
3. How is price decided in coal industry where there is situation of near monopoly? (Explain with suitable diagram). (10)
Managerial Economics
Assignment - I
Assignment Code: 2015GM04A1 Last Date of Submission: 15th May 2015
Maximum Marks: 100
Attempt all the questions. All the questions are compulsory and carry equal marks.
Section-A
1. What are the key points in short run production functions that delineate the three stages of production? Explain the relationship between the law of diminishing return and three stages of production.
2. “Because of economics of scale, it is sometimes more cost effective for a firm to operate a large plant at less than maximum efficiency than a small plant at maximum efficiency”. Do you agree with this statement? Explain.
3. Explain the following concepts with suitable example.
(a) Opportunity Cost
(b) Discounting principle
4. “Managerial economics involves use of economic analysis to make business decisions involving the best use of a firm’s scarce resources” Explain the statement with suitable example.
Section-B
Case Study
A travel company has hired a management consulting company to analyze demand in 26 regional markets for one of its major products: a guided tour to a particular country. The consultant uses data to estimate the following equation:
Q = 1,500 = 4P + 5A+ 10I +3PX
where Q = amount of the product demanded
P = price of the product in dollars
A= advertising expenditures in thousands of dollars.
I = income in thousands of dollars
PX = price of some other travel products offered by a competing travel company
Questions:
a. Calculate the amount demanded for this product using the following data:
P = $400
A= $20,000
I = $15,000
PX = $500 (5)
b. Suppose the competitor reduced the price of its travel products to $400 to match the price of this firm’s product. How much would this firm have to increase its advertising in order to counteract the drop in its competitor’s price? Would it be worth it for them to do so? Explain. (10)
c. What other variables might be important in helping estimate the demand for this travel product? (5)
GM 04
Managerial Economics
Assignment - II
Assignment Code: 2015GM04A2 Last Date of Submission: 15th May 2015
Maximum Marks: 100
Attempt all the questions. All the questions are compulsory and carry equal marks.
Section-A
1. What is meant by monopolistic competition? Is product differentiation an outcome of monopolistic competition or vice-versa? Discuss the behavior of the firm under monopolistic competition
2. What is Oligopoly? Explain how price & output decisions are taken under the conditions of collusive
Oligopoly.
3. Explain why the demand curve facing a perfectly competitive firm is assumed to be perfectly elastic.
4. Enumerate various models of managerial and behavioural theory. Explain in detail Marris
model of managerial economics.
Section-B
Case Study
Govt Moves to overhaul coal sector
The government on Wednesday moved a step closer to restructure the coal sector with a proposal that could potentially benefit the power companies that have been strained by the scarcity and poor quality of coal supplied to them.
A group of ministers (GoM) signed off on a plan to set up a coal regulator and to create a “pass-through” mechanism that would see higher costs from imported coal being passed on as increased tariffs.
The proposal is now expected to be presented to the Union cabinet for its approval on 7 June 2013. “We have been able to achieve traction and closure, pretty much, with regard to the coal regulator Bill, in terms of the formulation of different clauses and finality of its structure,” said minister of state for power Jyotiraditya Scindia. “Similarly, with regard to the pass-through mechanism for increasing supply of coal from external sources to the power sector, we have achieved closure on that mechanism structure as well.”
The proposed coal regulator will be primarily entrusted with the task of monitoring testing, quality, supply and grading of coal, but will not regulate pricing. It will, however, have an attached appellate body that will adjudicate on disputes between coal suppliers and buyers, including some pricing issues.
Finance minister P. Chidambaram said that pricing of coal would be kept out of the ambit of the coal regulator, and that it would be empowered to resolve disputes, including those arising out of fuel supply agreements with power and other downstream producers.
“There is an agreement that pricing must be left to the producer of coal, but the regulator will have powers to adjudicate on disputes relating to price, quality, supplies. All disputes will be adjudicated with the regulator and then there will be an appellate authority,” PTI had cited Chidambaram as saying.
Scindia said the proposed appellate body would have some control over pricing.
“We certainly have given a certain amount of authority to the coal regulator in certain very specified cases,” he said in response to a question if regulation of pricing was within its ambit. Besides pricing, the new body will be entrusted with the regulation of testing, quality, supply and grading of coal, Scindia said.
“It (the proposed regulator) takes into account the interest of all stakeholders within the industry, the suppliers of coal as well as the buyers of coal,” he said. “It balances and protects the interest of all stakeholders and, at the same time, gives a very judicious balance to the regulatory authority to be able to supervise the supply and demand of coal in the country.”
Both the proposals—one on the regulator and the appellate body and the other on the price pass-through mechanism—are likely to be taken up by the cabinet on 7 June, a top coal ministry official said.
Analysts and senior coal industry executives are, however, not convinced about the effectiveness of a coal regulator, especially if pricing is kept out of its remit. For one, stateowned Coal India Ltd (CIL) is a near-monopoly producer of the fuel. “It will be a nightmare, even if it is given full pricing powers. What will you regulate? It is not just a case of CIL being a monopoly player. The cost of production of varying grades of coal from different mines is different, so imagine how many permutations and combinations there will be to regulate,” said a senior CIL official who did not want to be identified.
Chintan J. Mehta, an analyst with Mumbai-based Sunidhi Securities and Finance Ltd, said that without the authority to regulate pricing, the new body will be ineffective. “Although CIL has a monopoly over pricing, a regulator, if it had the power, could have raised an objection, thereby compelling the company into changing prices. That cannot happen now,” he said.
“Having said that, various non-pricing processes will be streamlined and become transparent, as the regulator will be an independent non-political entity,” Mehta added.
On 22 April, the cabinet had rejected a proposal to pool coal prices, which is the averaging out of cheaper domestic coal with costlier imports as a means of helping those who have to depend on supplies from overseas. Instead, it had asked a ministerial panel to set up a mechanism to pass on the incremental costs due to costlier imported coal to power producers.
CIL, the world’s largest miner of coal, supplies 85% of the domestic coal demand. It has been unable to meet growing demand, especially from the power sector, and hence has been resorting to imports to meet supply obligations.
While a pass-through price structure will increase electricity tariffs for consumers, it could potentially help restore investor interest in the power sector.
Source: Article form Live Mint published: Tue, Nov 27,2012
Questions:
1. What steps have been taken by government to overhaul coal sector? (5)
2. How effective coal regulator would be to avoid monopoly situation in coal industry in case pricing is kept out of its remit? (5)
3. How is price decided in coal industry where there is situation of near monopoly? (Explain with suitable diagram). (10)
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