Subject Code: IMT-20

Subject Name : Managerial

Economics

Objective: 1. The objective of the paper is to explain the concepts of applied microeconomics. 2. The emphasis shall be on theory of the firm, consumer demand, market system, production analysis, theory of cost, capital budgeting and risk analysis Contents :
Basic Concepts and Principles: Definition and Scope of Economics, Basic Assumptions, Types of Economic Analysis, Kinds of Economic Decisions, Managerial Economics, Economic Principles Relevant to Managerial Decisions, Managerial Economics and Functions of Management, Relation of Managerial Economics with Decision Sciences Theory of Firm: Objectives of a Firm Demand and Supply Analysis: Demand, Law of Demand, Supply, Law of Supply, Market Equilibrium Consumer Preferences and Choice: Consumer Choice, Consumer Preferences, Consumers Income, Revealed Preference Theory Elasticity of Demand : Price Elasticity of Demand, Revenue and Price Elasticity of Demand, Income Elasticity of Demand Cross Elasticity of Demand, Promotional Elasticity of Demand, Importance of Elasticity of Demand Production Theory: Production Function , Production Function with One Variable Input, Production Function with Two Variable Inputs, Elasticity of Substitution, Isocost Lines, Producers Equilibrium, Expansion Path, Returns to Scale, Different Types of Production Functions, Technical Progress and its Implications Cost Concepts: Kinds of Costs, Costs in Short Run, Costs in Long Run, Costs of a Multi Product Firm, Costs of Joint Products, Linkage between Cost, Revenue and Output through Optimisation, Economies of Scale, Economies of Scope, Cost and Learning Curves Perfect Competition: Market Morphology, Perfect Competition, Demand and Revenue of a Firm, Market Demand Curve and Firms Demand Curve , Short Run Equilibrium, Market Supply Curve and Firms Supply Curve, Long Run Equilibrium, Perfect Competition: Existence in Real World Monopoly: Reasons and Types of Monopoly, Demand and Marginal Revenue Curves for a Monopoly, Price and Output Decisions in Short Run, Price and Output Decisions in Long Run, Supply Curve of a Monopoly, Price and Output Decisions of Multi Plant , Monopoly, Price Discrimination, Price and Output Decisions of Discriminating, Monopolist, Economic Inefficiency of Monopoly Monopolistic Competition: Monopolistic Competition and Advertising, Comparison between Monopolistic Competition, Monopoly and Perfect Competition, Demand and Marginal Revenue Curves of a Firm, Price and Output Decisions in Short Run, Price and Output Decisions in Long Run Oligopoly: Oligopoly, Duopoly, Price and Output Decisions, Collusive Oligopoly, Price Leadership, Recent Global Trends National Income: Concepts of National Income, Measurement of National Income, Uses of National Income Data, Difficulties in the Measurement of National Income Inflation: Inflation and Decision Making, Measuring Inflation, Inflation and Employment, Control of Inflation Business Cycles: Features of Business Cycles, Phases of Business Cycles, Effects of Business Cycles, Controlling Business Cycles

Notes:
a. b. c. d. A. Write answers in your own words as far as possible and refrain from copying from the text books/handouts. Answers of Ist Set (Part-A), IInd Set (Part-B), IIIrd Set (Part C) and Set-IV (Case Study) must be sent together. Mail the answer sheets alongwith the copy of assignments for evaluation & return. Only hand written assignments shall be accepted. First Set of Assignments: 5 Questions, each question carries 1 marks.

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B. Second Set of Assignments: C. Third Set of Assignments: D. Forth Set of Assignments:

10 Questions, each question carries .5 marks. 5 Questions, each question carries 1 marks. Confine your answers to 150 to 200 Words. Two Case Studies : 5 Marks. Each case study carries 2.5 marks.

ASSIGNMENTS
FIRST SET OF ASSIGNMENTS Marks Assignment-I = 5

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, and MPL. 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?
SECOND SET OF ASSIGNMENTS Assignment-II = 5 Marks

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?
THIRD SET OF ASSIGNMENTS Assignment-III = 5 Marks

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.

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FOURTH SET OF ASSIGNMENTS

Assignment-IV = 2.5 Each Case Study

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.

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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 0-250 13.07 Above 250 0-250 13.07 Above 250 COMMERCIAL RATES (SMALL BUSINESS) 0-900 14.91 Above 900 0-900 16.41 Above 900 COMMERCIAL RATES (LARGE BUSINESS) 0-15,000 5.60 Above 15,000 0-15,000 5.60 Above 15,000

Winter Summer Winter Summer Winter Summer Questions

Cents/kWh 12.48 13.98 13.74 15.24 5.21 5.21

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.

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