MB0042 – Managerial Economics Semester - I Assignment Set-I Q1. Price elasticity of demand depends on various factors. Explain each factor with the help of an example. Answer. Elasticity of Demand: Earlier we have discussed the law of demand and its determinants. It tells us only the direction of change in price and quantity demanded. But it does not specify how much more is purchased when price falls or how much less is bought when price rises. In order to understand the quantitative changes
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and will benefit everyone. Economic goods are goods of value that can be seen and touched. Economic services are intangible things (with value) that cannot been seen or touched. All Rights Reserved 2– 3 LAW OF DEMAND Law of demand states that the higher the price of a good‚ the lower is the quantity demanded for that good and the lower the price‚ the higher is the quantity demanded‚ ceteris paribus. P ↑ Qdd ↓ P ↓ Qdd ↑ NEGATIVE RELATIONSHIP All Rights Reserved 2– 4
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and exit Short Run Firm has some market power and faces downward sloping demand curve Price exceeds marginal cost When P>AC firms earn positive economic profits Long Run Positive economic profits in short run attracts new firms Firm’s market share falls and demand curve shifts down P=AC firms earn 0 economic profit P>MC and 0 economic profits deadweight loss Market in which only a few firms compete with one another‚ and entry by new firms is impeded Oligopoly Environment Few
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or more firms in which no firm can improve its payoff by switching strategy. Nash equilibrium maintains focus on rivalries with mutual gain. Oligopolistic firms chooses prices and inputs to maximize profits‚ however‚ firms could also compete on other dimensions such as location‚ and in research and advertising. In Nash Equilibrium a firm’s decision is typically its best response‚ given the actions of its competitor. For example‚ a value meal at McDonald’s may be $4.50 given that
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$10‚000 Utilities $1‚000 Interest on bank loan $10‚000 ________________________________________ Calculate (a)the explicit costs‚ (b) the implicit costs (c) the business profit (d) the economic profit and (e) the normal return on investment in the business. a) Explicit Costs = $45‚000 + $15‚000 + $10‚000 + $1‚000 + $10‚000 = $81‚000 b) Implicit Costs = Opportunity Cost – which is her salary foregone = $25‚000 c)
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(Prof. Alfred Marshall) We can define Nat ional Income as t he collective achievement of a nat ion. In t his way‚ t he Nat ional Income is t he aggregat e of t he individual incomes. (Prof. Gardner Ackley) Nat ional Income is t he basic concept of economic‚ which refers t o t he market value of t he goods and services produced during a part icular year. (Prof. Richard Lipsy) CONCEPTS OF NATIONAL INCOme ----1.GROSS DOMESTIC PRODUct Total value of output (goods and services) produced by the factors
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transaction cost economics. Some organizations struggle whether or not to outsource the IT division. The company has two choices for any economic activity: going outside to market or perform the activities in-house. In any case‚ the cost of the activity is divided into production costs‚ and transaction costs. Production costs in the case of the in-house division‚ includes hardware and software‚ whereas the transaction cost‚ which are the activities related to implementing the economic activity includes
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10% (amounts to $95‚000) cause the seller to adjust the price to $1‚005‚000 and $1‚045‚000. This is above the value placed by the buyer. As such‚ the transaction does not go through. | | | | | * Question 3 1 out of 1 points | | | Economic profits are: Answer | | | | | Selected Answer: | b. [Total Sales Revenue] - [Market Value of all the Resources Employed in the Production Process] | Correct Answer: | b. [Total Sales Revenue] - [Market Value of all the Resources Employed
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Definition of managerial economics 7 1.2 Choice and opportunity cost 9 2.0 Basic concerns of economics 9 3.0.0 Theories of economics 12 3.1.0 The theory of demand 13 3.1.1 Tastes 14 3.1.2 Number of buyers 14 3.1.3 Income 14 3.1.5 Expectations 15 3.2 The theory of supply 16 3.3 The theory of production 16 3.4 The theory of price( in government) 17 3.5 The theory of consumer behaviour 17 3.5.1 Rational behaviour 17 3.5.2 Preferences 17 3.5.3 Budget constraint 18 3.5.4 Prices 18 4.0 Managerial Economics and Economic
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THE FIRM’S BASIC PROFIT MAXIMIZATION PROBLEM Chapter 2 slide 1 What Quantity of Output should the Firm Produce and Sell and at What Price? The Answer depends on Revenue and Cost Predictions. The Solution is Found using Marginal Analysis. Expand an Activity if and only if the Extra Benefit exceeds the Extra Cost. MAXIMIZING PROFIT FROM MICROCHIPS 2.2 A1. Focus on a single Product‚ A2. whose Revenues and Costs can be predicted with Certainty. Revenue can be predicted using the Demand
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