Documente Academic
Documente Profesional
Documente Cultură
MB0042/MBF105
ASSIGNMENT
FALL 2014
LC-02009
NANDESHWAR SINGH
ROLL NO: 1408001255
Q1. Inflation is a global phenomenon which is associated with high
price cost decline in the value of money. It exits when the amount of
the money in the country is in excess of the physical volume of goods
and services. Explain the reasons for this monetary phenomenon?
Ans. Inflation is a situation of sustainable and rapid increase in the level of price and
consequent deterioration in the value of money over a period of time. It refers to the
average rise in the general level of prices and fall in the value of money. It is upward
movement in average level of price.
2. SUPPLY SIDE- Supply of goods and services are not always keeping
pace with increasing demand of goods and services. Thus they not matched
with demand. Increasing in supply of goods and services may be limited
because of the following reasons:
Shortage in the supply of factor of production - Due to
shortage of factor of production like raw material, labour, capital equipments,
etc. There will be a rise in prices.
Operation of law of diminishing returns- In law of
diminishing returns, increase in production is possible only at a higher cost
which demotivates the producers to invest. Thus, production will not increase
proportionately to meet the increase in demand.
Hoarding by consumers- Sometimes consumer may hoard goods
to avoid to payment of higher prices in future. This leads to an increase in the
current demand, which in turn stimulates prices.
Role of trade unions- Trade union will lead to industrial unrest in
the form of strikes, lockouts also reduces production. This will lead to
creation of excess demand they eventually brings a rise in price level.
Role of natural calamities- Earthquake, floods, drought like
natural climates also affect the supply of agricultural products adversely. It
may also lead shortage of food grains; raw-material thus leads inflationary
conditions.
War – During the period of war, shortage of essential goods creates a
rise in prices.
Q2. Monopoly is the situation there exist single controls over the
market producing a commodity having no substituted with no
possibilities anyone to enter the industry to complete. In that situation
they will not charge a uniform price for the entire customer in the
market and also the price policy will follow in that situation?
Ans. Monopoly refers to single seller and large number of buyers in market. It is the
market form in which a single producer controls the whole supply of a single
commodity which has no close substitutes.
Features of monopoly –
3. Free entry and exists of firms- Each firm produces close substitute for the
existing brand of a product. It provides opportunity for a firm to enter with the group
or an industry.
Ans. Prefect competition is a comprehensive term in which the number of buyers and
sellers are large, all engaged in buying and selling a homogeneous product without any
artificial restriction and, possessing perfect knowledge of the market at a time.
Y Y
D S P3
E3 SAC
B AVC
R COST/ P2
E2
REVENUE P2 E1
S D P4
O O
In perfect competition firm will not produce any output unless the price is at least
equal to the minimum AVC. If short run price is just equal to AVC, it will not cover
fixed costs and hence, there will be losses. However, it will continue in the industry
with the people with the hope that it will recover the fixed costs in the future.
If price is above the AVC and below the AC, it is called `Loss minimization’ zones. If
the price is lower than AVC, the firm is compelled to stop production altogether.
If AC=price, there will be normal profits. If AC is greater than price, there will be
losses and if AC is lower than price, then there will be supernormal profits. If the firm
will never cover AFC nor AVC and hence it has to wind up its operations. It is
regarded as shut-down point.
PRICE = MC = MR
If firm cover its full costs and should earn only normal profits. This is
possible when normal price is equal to long run average cost of production.
Hence,
Price = AR = AC
If AR > AC, supernormal profits earned. This leads to the entry of new
firms, increase in the total number of firms, expansion in the output, increase in
the supply, fall in the price and fall in the ratio of profits.
On other hand, when AC<AR, the industry will be incurring losses, This leads
to the exit of old firms, decrease in the numbers of firms, contraction on output,
rise in price. Thus, losses and profits are incompatible with the position of
equilibrium.
Price = MR = MC = AR = AC