Subject: IMT-20: Managerial Economics-MT3
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PART- A

1. Explain the law of diminishing marginal utility.

2. Define income elasticity of demand. Explain the various degrees of income elasticity of demand.

3. What is the relationship between TPL, APL, andMPL.

4. Why does the short run Average Variable Cost (AVC) curve and Average Cost (AC) curves have a U- shape?

5. Does the traditional profit maximization model hold relevance in modern world? Why?

PART- B

1. Explain the concept of opportunity cost with the help of Production Possibility Curve.

2. Distinguish between a movement and a shift in supply.

3. Why is a normal Indifference Curve convex to origin?

4. Explain the phases of a business cycle.

5. What conditions should be fulfilled for the existence of a cartel? What is a centralised and market sharing cartel?

PART- C

1. Diagrammatically explain how market equilibrium is achieved in case there is excess supply and excess demand.

2. Is a monopolistic competitor a price maker? Why?

3. Define GDP, GNP, NDP and NNP. Distinguish between real and nominal National Income.

4. Describe the features of oligopoly market structure.

5. Briefly explain the various types of internal economies of scale.

CASE STUDY - I

The stock market is as close as we come today to a perfectly competitive market. In most cases the price of a particular stock is determined by the market forces of demand and supply of the stock, and individual buyers and sellers of the stock have an insignificant effect on price i.e., they are price takers. All stocks within each category are more or less homogeneous. The fact that a stock is bought and sold frequently is evidence that resources are mobile. Finally, information on prices and quantities is readily available.

In general, the price of a stock reflects all the publicly known information about the present and expected future profitability of the stock. This is known as the efficient market hypothesis. Funds flow into stocks, and resources flow into uses in which the rate of return, corrected for risk, is highest. Thus, stock prices provide the signals for the efficient allocation of investments in the economy. Despite the fact that the stock market is close to being a perfectly competitive market, imperfections occur even here. For example, the sale of $ 1 billion worth of stocks by IBM or any other large corporation will certainly affect (depress) the price of its stocks.

Today, more and more Americans trade foreign stocks, and more and more foreigners trade American stocks. This has been the result of a communication revolution that linked stock markets around immense new earning possibilities and sharply increased opportunities for portfolio diversification, it also creates the danger that a crisis in one market will very quickly spread to other markets around the world. This actually happened when the New York Stock Exchange collapsed in October 1987. In recent years, the New York Stock Exchange seems to have lost some of its former ability to predict changing economic conditions and its importance as the central source of capital for corporate America, as the latter borrowed increasing amounts from banks for takeovers and mergers.

Questions

1. Explain the features of a perfectly competitive market on the basis of the facts given in the case.

2. Diagrammatically explain how price and output decisions are taken under perfect competition.

CASE STUDY-II

Table below gives the price per kilowatt-hour (kWh) that Con Edison charged residential and commercial users for various quantities of electricity consumed in New York city in 1995 during winter and summer months. Con Edison charged different rates for different categories of customers (i.e., residential and commercial) and for different quantities of electricity purchased. Electricity Rates Charged by Con Edison in 1995

(cents per kilowatt - hour)

RESIDENTAL RATES ( SINGLE RESIDENCE )

kWh Cents/kWh kWh Cents/kWh

Winter 0-250 13.07 Above 250 12.48

Summer 0-250 13.07 Above 250 13.98

COMMERCIAL RATES (SMALL BUSINESS)

Winter 0-900 14.91 Above 900 13.74

Summer 0-900 16.41 Above 900 15.24

COMMERCIAL RATES (LARGE BUSINESS)

Winter 0-15,000 5.60 Above 15,000 5.21

Summer 0-15,000 5.60 Above 15,000 5.21

Questions

1. What is price discrimination? Is price discrimination justified? Why?

2. Do you think Con Edison practiced price discrimination? Explain in view of three types of price

discrimination.