GM04
Managerial Economics
(For CNM Cases)
Assignment - I
Assignment Code: 2016GM04A1 Last Date of Submission: 30th April 2016
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)
Managerial Economics
(For CNM Cases)
Assignment - I
Assignment Code: 2016GM04A1 Last Date of Submission: 30th April 2016
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)
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