GM04
Managerial Economics
(For CNM Cases)
Assignment - II
Assignment
Code: 2016GM04A2
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
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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