ignou mbs ms-09 solved assignments 2010

8/6/2019 IGNOU MBS MS-09 Solved Assignments 2010

http://slidepdf.com/reader/full/ignou-mbs-ms-09-solved-assignments-2010 1/19

IGNOU MBS MS-09 Solved Assignments 2010

Course Code : MS-9Course Title : Managerial Economics

Assignment Code : 9/TMA/SEM-I/2010Coverage : All Blocks

Note: Please attempt all the questions and send it to the Coordinator of the study

center you are attached with

1. ³Profit Maximisation is the main objective of a firm´ Discuss this

statement with the help of an example.

Solution: The profit maximization principle stresses on the fact that the motive of

business firms to maximize profit is solely justified as being a method of maximizing the income of their shareholders.Firms may maximize profit by maximizing sales, stock price, market share or cashflow. In order to achieve maximum profit the firm needs to find out the pointwhere the difference between total revenue and total cost is the highest.The rules that apply for profit maximization are:i. increase output as long as marginal profit increasesii. profit will increase as long as marginal revenue (MR) > marginal cost (MC)iii. profit will decline if MR < MCiv. summing up (ii) and (iii), profit is maximized when MR = MC

A process that companies undergo to determine the best output and price levelsin order to maximize its return . The company will usually adjust influentialfactors such as production costs , sales prices, and output levels as a way of reaching its profit goal . There are two main profit maximization methods used,and they are marginal Cost-Marginal revenue method and Total Cost-TotalRevenue Method. Profit maximization is a good thing for a company, but can be a bad thing for consumers if the company starts to use cheaper products or decides to raise prices.Economic theory is based on the reasonable notion that people attempt to do aswell as they can for themselves, given the constraints facing them. For example,

consumers purchase things that they believe will make them feel more satisfied, but their purchases are limited (at least in the long run) by the amount of incomethey earn. A consumer can borrow to finance current purchases but must (if honest) repay the loans at a later date.Business owners also attempt to manage their businesses so as to improve their well being. Since the real world is a complicated place, a business owner mayimprove his well being in a number of ways. For example, if the business doesn't



lack customers, the owner could respond by reducing operating hours andenjoying more leisure. Or, the business owner may seek satisfaction by earning asmuch profit as possible. This is the alternative we will focus on in class - for avery good reason. If a business faces tough competition, the only way the businesscan survive is to pay attention to revenues and costs. In many industries, profit

maximization is not simply a potential goal; it's the only feasible goal, given thedesire of other businesspeople to drive their competitors out of business.In economic terms, profit is the difference between a firm's total revenue and itstotal opportunity cost. Total revenue is the amount of income earned by selling products. In our simplified examples, total revenue equals P x Q, the (single) priceof the product multiplied times the number of units sold. Total opportunity costincludes both the costs of all inputs into the production process plus the value of the highest-valued alternatives to which owned resources could be put. For example, a firm that has $100,000 in cash could invest in new, more efficient,machines to reduce its unit production costs. But the firm could just as well use the

$100,000 to purchase bonds paying a 7% rate of interest. If the firm uses themoney to buy new machinery, it must recognize that it is giving up $7000 per year in forgone interest earnings. The $7000 represents the opportunity cost of usingthe funds to buy the machinery.We will assume that the overriding goal of the managers of firms is to maximize profit: P = TR - TC. The managers do this by increasing total revenue (TR) or reducing total opportunity cost (TC) so that the difference rises to a maximum.An ExampleSuppose you are running a business that produces and sells office furniture. It's asmall operation, and in a typical day you produce three custom desks. You are able

sell these desks for $500 apiece. You employ five workers, each of whom earns$15 per hour ($120 per day), and you work alongside them and pay yourself at thesame rate. Material inputs cost $150 per desk. Of course, you have additional"overhead" expenses, including rent, a secretary/bookkeeper, electricity, etc. Thisoverhead, which we will assume does not vary with the number of desks produced(i.e., it's a fixed cost) comes to $130 per day. Thus, your company earns a profit of P = ($500 x 3) - ($720 + 450 + 130) = $1500 - $1300 = $200 per day. (Wages for six workers come to $720. Materials for three desks cost $450. Overhead is $130.)Working five days a week for 50 weeks a year, that comes to an annual profit of $50,000. Pretty nice - but could you do better?Suppose you decide to increase production to four desks per day. This requiresyou to hire two more workers (at another $240) and purchase another $150 worthof materials. Overhead expense doesn't change. Your total cost rises to $1690.You find that you are able to sell the fourth desk for $500. Was this a gooddecision? [Engage brain here.]You're right. [I'm giving you the benefit of the doubt here.] Total revenue rises to$2000 per day, while total costs rise to $1690. Profit increases to $310 per day.Good show, old man/woman/[insert desired politically correct term here]!



This nice result may lead you to increase production to five desks a day. If you areable to sell all five desks for $500 each, and if your variable costs of producing thedesks - what you pay in labor and materials - doesn't increase, producing a fifthdesk makes sense. TR rises to $2500, TC rises to $2080, and profit increases to$420. So you sell five desks.

Suppose, however, that you find that the labor market is so tight that you cannothire another two workers at $15 per hour. In fact, to hire your ninth and tenthworkers, you must pay $20 per hour. That increases the labor cost of the fifth desk by $80 ($40 per worker times two workers). TC rises to $2160, which still allows profit to increase to $340. But we have a problem brewing. Can you really getaway with paying your veteran workers $15 an hour, while at the same time hiringnew workers at $20 per hour? Not likely. So when you hire the ninth and tenthworkers, you are forced to raise the wages of your first eight workers (Payyourself more; hey, you deserve it.). Let's recalculate profit for Q = 5. TR = $500x 5 = $2500. TC = ($160 x 10) + ($150 x 5) + $130 = $2480. That leaves a profit

of $20. Doesn't look like such a good idea now, does it Einstein? Thus, if yourealize that your costs will rise sharply if you produce a fifth desk each day, youwill decline to produce the desk.ApplicationOur little example illustrates the situation every business owner or manager faces.Businesspeople know what their current position is (revenue and costs) and theycan estimate TR and TC for a higher (or lower) level of production. By actuallychanging output levels, they learn by experience what their demand and costcurves look like. In the process, they discover what happens to profit as theychange output levels. Through this discovery process, businesspeople seek to find

the output level that maximizes profit.As omniscient onlookers, we can describe this process a bit more analytically. Afirm should increase its output so long as the marginal revenue earned fromadditional units of production is greater than the marginal cost of those units.Marginal revenue is the additional revenue earned by selling one more unit of a product. (In our example, MR = $500.) Marginal cost is the additional costincurred in producing one more unit of output. So long as MR > MC, profit grows.However, when MR < MC, profit shrinks. So firms expand output only to the point at which MR = MC. This point maximizes profit.The profit-maximization rule applies both to firms that are able to sell their product at a constant price (as in our example) and to firms that find they mustreduce the price of their product to increase sales. In the real world, firms have toengage in trial-and-error discovery processes, searching for the profit-maximization point. But the process can be succinctly described by the marginalrevenue-marginal cost rule.***Suppose that firm j is perfectly competitive.



Case 1) If the market price Pmkt is greater than the minimum of firm j's averagetotal cost (ATC) curve, then firm j maximizes its short run (SR) profits at theoutput level, denoted Qj*, that satisfies the condition: marginal revenue equalsmarginal cost (MR = MC). In this case, firm j's SR profits at Qj* are positive andequal to [Pmkt - ATC(Qj*)] x Qj* > 0, where ATC(Qj*) denotes average total cost

at Qj*. Note that if Pmkt equals the minimum of the ATC curve (Pmkt =ATC(Qj*)), then firm j's SR profits at Qj* are zero and firm j is said to be at its SR break-even point.Case 2) If the market price Pmkt is between the minimum of the average variablecost (AVC) curve and the minimum of the ATC curve (i.e., min AVC < Pmkt <min ATC), then a firm j maximizes its SR profits (i.e., minimizes its loss) at theoutput level Qj* that satisfies the condidtion MR = MC. In this case, firm j's SR profits at Qj* are negative but its loss at Qj* is less than its loss if firm j were toshut down and produce zero output, the latter of which would be equal to its totalfixed costs, TFC. That is, -TFC < j's SR profits at Qj* = [Pmkt - ATC(Qj*)] x Qj*

< 0.Case 3) If the market price Pmkt equals the minimum of the AVC curve, then firm j maximizes its SR profits (i.e., minimizes its loss) either at the output level Qj*that satisfies the condition MR = MC or at 0 (zero) output. In this case, firm j's SR profits at either Qj* or 0 are negative and equal to -TFC and firm j is said to be atits SR shutdowm point. That is, j's SR profits at either Qj* or 0 output = -TFC.Case 4) If the market price Pmkt is less than the minimum of the AVC curve, thenfirm j maximizes its SR profits (i.e., minimizes its SR losses), at 0 (zero) output. If Qj' is the quantity that satisfies MR = MC, then j's SR loss at Qj'is greater than itsSR loss at 0 output, which is equal to -TFC. Thus, the loss (negative profits) are

minimized at 0 instead of at the quantity where MR = MC.That is, j's SR profits atQj' < j's SR profits at 0 output = -TFC < 0

=======================================================

2. Briefly explain the marketing approach to Demand measurement.

Solution: Methods Based on Judgment

Unaided judgment METHOD.It is common practice to ask experts what will happen. This is a good procedure touse when� experts are unbiased� large changes are unlikely� relationships are well understood by experts (e.g., demand goes up when pricesgo down)



� experts possess privileged information� experts receive accurate and well-summarized feedback about their forecasts.

Prediction markets METHOD.

Prediction markets, also known as betting markets, information markets, andfutures markets have a long history.

Some commercial organisations provide internet markets and software that toallow participants to predict.Consultants can also set up betting markets withinfirms to bet on such things as the sales growth of a new product. PREDICTIONScan produce accurate sales forecasts when used within companies. However, thereare no empirical studies that compare forecasts from prediction markets and withthose from traditional groups or from other methods.

Delphi METHOD.The Delphi technique helps to capture the knowledge of diverse experts whileavoiding the disadvantages of traditional group meetings. The latter include bullying and time-wasting.To forecast with Delphi the administrator should recruit between five and twentysuitable experts and poll them for their forecasts and reasons. The administrator then provides the experts with anonymous summary statistics on the forecasts, andexperts¶ reasons for their forecasts. The process is repeated until there is littlechange in forecasts between rounds ± two or three rounds are usually sufficient.The Delphi forecast is the median or mode of the experts¶ final forecasts.

The forecasts from Delphi groups are substantially more accurate than forecastsfrom unaided judgement and traditional groups, and are somewhat more accuratethan combined forecasts from unaided judgement.

Structured analogies METHOD.The outcomes of similar situations from the past (analogies) may help a marketer to forecast the outcome of a new (target) situation. For example, the introductionof new products in the markets can provide analogies for the outcomes of thesubsequent release of similar products in other countries.People often use analogies to make forecasts, but they do not do so in a structuredmanner. For example, they might search for an analogy that suits their prior beliefsor they might stop searching when they identify one analogy. The structured-analogies method uses a formal process to overcome biased and inefficient use of information from analogous situations.To use the structured analogies method, an administrator prepares a description of the target situation and selects experts who have knowledge of analogoussituations; preferably direct experience. The experts identify and describeanalogous situations, rate their similarity to the target situation, and match the



With intentions surveys, people are asked how they intend to behave in specifiedsituations. In a similar manner, an expectations survey asks people how theyexpect to behave. Expectations differ from intentions because people realize thatunintended things happen. For example, if you were asked whether you intendedto visit the dentist in the next six months you might say no. However, you realize

that a problem might arise that would necessitate such a visit, so your expectationswould be that the event had a probability greater than zero.

Expectations and intentions can be obtained using probability scales . The scaleshould have descriptions such as 0 = µNo chance, or almost no chance (1 in 100)¶to 10 = µCertain, or practically certain (99 in 100)¶.To forecast demand using a survey of potential consumers, the administrator should prepare an accurate and comprehensive description of the product andconditions of sale. He should select a representative sample of the population of interest and develop questions to elicit expectations from respondents. Bias in

responses should be assessed if possible and the data adjusted accordingly. The behaviour of the population is forecast by aggregating the survey responses.

Conjoint analysis METHOD.By surveying consumers about their preferences for alternative product designs ina structured way, it is possible to infer how different features will influencedemand. Potential customers might be presented with a series of perhaps 20 pairsof offerings. For example, various features of a personal digital assistant such as price, weight, battery life, screen clarity and memory could be varied substantiallysuch that the features do not correlate with one another. The potential customer is

thus forced to make trade-offs among various features by choosing one of each pair of offerings in a way that is representative of how they would choose in themarketplace. The resulting data can be analysed by regressing respondents¶choices against the product features.The method is based on sound principles, such as using experimental design andsoliciting independent intentions from a sample of potential customers.Unfortunately however, there do not appear to be studies that compare conjoint-analysis forecasts with forecasts from other reasonable methods.

Methods requiring quantitative data

Extrapolation METHODExtrapolation methods use historical data on that which one wishes to forecast.Exponential smoothing is the most popular and cost effective of the statisticalextrapolation methods. It implements the principle that recent data should beweighted more heavily and µsmoothes¶ out cyclical fluctuations to forecast thetrend. To use exponential smoothing to extrapolate, the administrator should first



clean and deseasonalise the data, and select reasonable smoothing factors. Theadministrator then calculates an average and trend from the data and uses these toderive a forecastStatistical extrapolations are cost effective when forecasts are needed for each of hundreds of inventory items. They are also useful where forecasters are biased or

ignorant of the situation .Allow for seasonality when using quarterly, monthly, or daily data. Most firms dothis . Seasonality adjustments led to substantial gains in accuracy in the large-scalestudy of time series .

Quantitative analogies METHOD.Experts can identify situations that are analogous to a given situation. These can be used to extrapolate the outcome of a target situation. For example, to assess theloss in sales when the patent protection for a drug is removed, one might examinethe historical pattern of sales for analogous drugs.

To forecast using quantitative analogies, ask experts to identify situations that areanalogous to the target situation and for which data are available. If the analogousdata provides information about the future of the target situation, such as per capita ticket sales for a play that is touring from city to city, forecast by calculatingaverages. If not, construct one model using target situation data and another usinganalogous data. Combine the parameters of the models, and forecast with thecombined model.

Rule-based forecasting METHODSRule-based forecasting (RBF) is a type of expert system that allows one to

integrate managers¶ knowledge about the domain with time-series data in astructured and inexpensive way. For example, in many cases a useful guideline isthat trends should be extrapolated only when they agree with managers¶ prior expectations. When the causal forces are contrary to the trend in the historicalseries, forecast errors tend to be large . Although such problems occur only in asmall percentage of cases, their effects are serious.To apply RBF, one must first identify features of the series using statisticalanalysis, inspection, and domain knowledge (including causal forces). The rulesare then used to adjust data, and to estimate short- and long-range models. RBFforecasts are a blend of the short- and long-range model forecasts.RBF is most useful when substantive domain knowledge is available, patterns arediscernable in the series, trends are strong, and forecasts are needed for longhorizons. Under such conditions, errors for rule-based forecasts are substantiallyless than those for combined forecasts . In cases where the conditions were notmet, forecast accuracy is not harmed.

Causal models METHODS.



Causal models are based on prior knowledge and theory. Time-series regressionand cross-sectional regression are commonly used for estimating model parameters or coefficients. These models allow one to examine the effects of marketing activity, such as a change in price, as well as key aspects of the market,thus providing information for contingency planning.

To develop causal models, one needs to select causal variables by using theory and prior knowledge. The key is to identify important variables, the direction of their effects, and any constraints. One should aim for a relatively simple model and useall available data to estimate it . Surprisingly, sophisticated statistical procedureshave not led to more accurate forecasts. In fact, crude estimates are often sufficientto provide accurate forecasts when using cross-sectional data .

=======================================================

3. From the demand function P = 200 ± 0.25Q or Q = 800 ± 4P. Calculate

point price elasticities at (i)P = 20 and Q = 240 and (ii) P = 125.

Solution: From the Given equation, P= 200 - 0.25Q? OR? Q= 800 - 4P Ad1>?

Ep = dQ/dP X? P/Q ??????

(- 4) X? 20/240??????????? =?

( So. if Ep < 1; It is inelastic ) ??????????? =? - 1/3 =? - 0.33

2 >?

We cannot find out the POINT PRICE ELASTICITY because here Price is Given but Quantity is not Given.(Means Q=0) ??????

We cannot find any solution when? Calculate P/Q = 125/0 = Infinity, means didn'tget any result.....

=======================================================

4. ³An analytical tool frequently employed by managerial economists is

the break even chart, an important application of cost function.´

Explain this statement.



Solution:Break-even analysis is a technique widely used by productionmanagement and management accountants. It is based on categorising productioncosts between those which are "variable" (costs that change when the productionoutput changes) and those that are "fixed" (costs not directly related to the volumeof production).

Total variable and fixed costs are compared with sales revenue in order todetermine the level of sales volume, sales value or production at which the business makes neither a profit nor a loss (the "break-even point").The Break-Even ChartIn its simplest form, the break-even chart is a graphical representation of costs atvarious levels of activity shown on the same chart as the variation of income (or sales, revenue) with the same variation in activity. The point at which neither profit nor loss is made is known as the "break-even point" and is represented onthe chart below by the intersection of the two lines

=======================================================

5. ³Classification of markets is based on their characteristics.´

Substantiate this statement with reference to Monopoly and Oligopoly

market structures.

Solution: Market CharacteristicsAn industry or market can be analyzed for its attractiveness to a particular company or organization on a number of different characteristics. The list below

presents some of the more significant market characteristics that should beconsidered.-Current market size-Projected market growth rate-Number of competitors, level of fragmentation-Intensity of competition-Technological skills required-Production/operations skills required-Capital requirements-Other barriers to entry-Seasonal and cyclical factors-Industry profitability and returns-Social, political, regulatory and environmental factors-Strategic fits with other businesses already owned

-GeneralIntroduce the target market and explain the need and demand, major characteristics, market size, and the business opportunity.



-SegmentationDivide the overall market into specific segments, to evaluate the market. Segmentthe market according to the following keys:By geographical market: split the overall market into geographical marketplaces,such as continents, states, cities.

By customer type: split the overall market according to customer types such asindustries, social & economic parameters, professions, age.By application type: split the overall market according to application.-Market Size & TrendsEvaluate the market size and trends per market segment, and present it in a tablesimilar to the one below:-CompetitionDescribe your main competitors, addressing the following questions:Who is the competition?How strong is the competition in the market?

What is our competition's market share?What are the distribution channels?

Customer profileProvide a potential customer profile, including:Short description of the customer Short description of purchasing behavior Business EnvironmentDefine the business environment and how it affects market behavior.

Characteristics of Perfectly Competitive Market Structures:

-There are many market participants ie buyers and sellers

-The good or service (ie the product) being bought and sold is homogenous ie it isidentical

-The buyers and sellers in these markets are price takers ie they are too small toinfluence the market price as individual buyers and sellers

-There is freedom of entry and exit by buyers and sellers to and from the market

-The firms in these markets do not incur advertising costs since to do so would price firms that advertise out of the market ie all firms can sell their products atmarket prices

-There is perfect information on the part of buyers and sellers regarding prices, product quality



-The products are perfect substitutes for each other because they are homogenous

Characteristics of Monopolistic Market Structures[TYPE 1 ]:

-There are many market participants ie many buyers and sellers in these markets

-The product is slightly differentiated ie the product is heterogonous

-The firms in these markets are price makers ie they set their own market price because they have more market power over the product they sell since each product is slightly differentiated

-There is freedom of entry and exit of buyers and sellers to and from these markets

-The firms in these markets incur advertising costs to market their slightlydifferentiated products and to inculcate brand loyalty among their clients

-There is imperfect information between buyers and sellers because of productiondifferentiation, price differential and product quality

-The products are substitutes since they are slightly differentiated they serve thesame function example bathing soap with different colors, shapes and odor

Characteristics of Oligopolist Market Structures:

-There are a few firms that dominate an oligopolist market or industry ie³fewness´ is a dominant characteristic of these markets. Fewness according to themicro-economist Arthur

-The reaction function of firms in an oligopolist market or industry isinterdependent ie the policy action of one firm affects the action of another firmregarding a change in price, output, advertising strategy etc

-Oligopolist firms are price makers ie they set their own prices

-The firms in oligopolist markets tend to collude to set price for their output,output etc. There are two (2) types of collusion of oligopolist firms (a)Explicitcollusion where oligopolist firms openly collude to determine price and outputlevels for their product where there are no strong Anti-Trust Laws and (b)Implicitcollusion where oligopolists agree in more covert ways to fix price and outputlevels. The latter type of collusion is used in places where Anti-Trust Laws are present and strong.



-The collusion of oligopolist firms in principle lead to the creation of cartels iecartelization of oligopolist industries results from their collusive behavior. A cartelis a group of producers (ie a producer cartel) or consumers (ie consumer cartel)that determines the price and quantity of output to be produced (producer cartel) or

consumed (consumer cartel) in a market. For example the Organization of Petroleum Producing Countries or OPEC is a global producer oil cartel, TheInternational Tin Association or ITA is also a global producer tin cartel

-Oligopolist firms tend to compete on non-price criteria such as advertising,warranties, gift certificates, packaging, transportation etc because they know that price wars or price competition is counterproductive

-Oligopolist firms seek to maximize their market share by trying to induce thecustomers of their clients away from them with better offers such as gifts, longer

warranties, appealing packaging, ³free transportation´ etc

-There are costs and technological barriers to the potential entry of rivalcompetitors in oligopolist markets\industries

-There is imperfect information between buyers and sellers in these markets

-There are two (2) types of oligopolist markets:

o (a) Differentiated oligopoly ie those oligopolist firms that sell products that are

slightly differentiated example breakfast cereals or airline services, or fast foodsetc and

o (b)Pure Oligopoly ie those oligopolist firms that sell products that arehomogenous like cooking gas or gasoline

-Oligopolist firms incur advertising costs to inculcate brand loyalty among their clients particularly in differentiated oligopoly markets

-There is imperfect information between buyers and sellers in oligopolist markets

Characteristics of Monopolist Market Structures [ TYPE 2 ]:

-There is a single-firm industry in the market ie the firm is the industry and viceversa

-There are no close substitutes for the product being sold by the monopolist firm



-There are no competitors in this market ie competition is absent for themonopolist firm

-The monopolist firm is a price maker ie a monopolist firm determines its ownmarket price without facing any competitors

-There are cost, technological and managerial barriers to entry in monopolistmarkets ie monopolist firms make it extremely difficult for potential rival firms todislodge their monopolist status by erecting disincentives to entry

-There is imperfect information between a monopolist firm and its customersregarding price, product quality etc which in the absence of competition deepens

-There are no close substitutes for the product being bought and sold in the market

-The monopolist may or may not incur advertising cost and the absence of competition facilitates this option for monopolist ie there is no pressure to incur these costs for marketing the product

=======================================================

6. Write short notes on the following :-

a) Alternative Objectives of F

irmsb) Direct Costs and Indirect Costs

c) Bundling

Solution: a) Alternative objectives of firms

Besides maximising profits,- maximise growth of firms by increasing sales and market power - maximise welfare by having more managerial power, larger office space- achieve their mission: donation to charity, cut down on disposables, encourage

recyclinglong run survival of the firmentry prevention and risk avoidanceSome important objectives, other than profit maximization are:(a) Maximization of the sales revenue

(b) Maximization of firm¶s growth rate



(c) Maximization of Managers utility function

(d) Making satisfactory rate of Profit

(e) Long run Survival of the firm

(f) Entry-prevention and risk-avoidanceProfit Business Objectives:

Profit means different things to different people. To an accountant ³Profit´ meansthe excess of revenue over all paid out costs including both manufacturing andoverhead expenses. For all practical purpose, profit or business income means profit in accounting sense plus non-allowable expenses.Economist¶s concept of profit is of ³Pure Profit´ called µeconomic profit¶ or ³Just profit´. Pure profit is a return over and above opportunity cost, i. e. the income

that a businessman might expect from the second best alternatives use of hisresources.Sales Revenue Maximisation: The reason behind sales revenue maximisationobjectives is the Dichotomy between ownership & management in large businesscorporations. This Dichotomy gives managers an opportunity to set their goalother than profits maximisation goal, which most-owner businessman pursue.Given the opportunity, managers choose to maximize their own utility function.The most plausible factor in manager¶s utility functions is maximisation of thesales revenue.

The factors, which explain the pursuance of this goal by the managers arefollowing:.

First: Salary and others earnings of managers are more closely related to salesrevenue than to profitsSecond: Banks and financial corporations look at sales revenue while financingthe corporation.Third: Trend in sales revenue is a readily available indicator of the performance of the firm.Maximisation of Firms Growth rate: Managers maximize firm¶s balance growthrate subject to managerial & financial constrains balance growth rate defined as:G = GD ± GCWhere GD = Growth rate of demand of firm¶s product & GC= growth rate of capital supply of capital to the firm.In simple words, A firm growth rate is balanced when demand for its product &supply of capital to the firm increase at the same time.



Maximisation of Managerial Utility function: The manager seek to maximize their own utility function subject to the minimum level of profit. Managers utilityfunction is express as:U= f(S, M, ID)Where S = additional expenditure of the staff

M= Managerial emolumentsID = Discretionary Investments

The utility functions which manager seek to maximize include both quantifiablevariables like salary and slack earnings; non- quantifiable variables such as prestige, power, status, Job security professional excellence etc.Long run survival & market share: according to some economist, the primary goalof the firm is long run survival. Some other economists have suggested thatattainment & retention of constant market share is an additional objective of thefirm¶s. the firm may seek to maximize their profit in the long run through it is not

certain.Entry-prevention and risk-avoidance, yet another alternative objectives of thefirms suggested by some economists is to prevent entry-prevention can be:Profit maximisation in the long runSecuring a constant market shareAvoidance of risk caused by the unpredictable behavior of the new firms

Micro economist has a vital role to play in running of any business. Microeconomists are concern with all the operational problems, which arise with in the business organization and fall in with in the preview and control of the

management. Some basic internal issues with which micro-economist areconcerns:Choice of business and nature of product i.e. what to produceChoice of size of the firm i. e how much to produceChoice of technology i.e. choosing the factor-combinationChoose of price i.e. how to price the commodityHow to promote salesHow to face price competitionHow to decide on new investmentsHow to manage profit and capitalHow to manage inventory i.e. stock to both finished & raw materialThese problems may also figure in forward planning. Micro economist deals withthese questions and like confronted by managers of the enterprises.==========================================================

b) Direct costs and indirect costs



Direct costs can be traced directly to a cost object such as a product or adepartment. In other words, direct costs do not have to be allocated to a product,department, or other cost object.For example, if a company produces artisan furniture, the cost of the wood and thecost of the craftsperson are direct costs²they are clearly traceable to the

production department and to each item produced²no allocation was needed. Onthe other hand, the rent of the building that houses the production area, warehouse,and office is not a direct cost of either the production department or the items produced. The rent is an indirect cost²an indirect cost of operating the productiondepartment and an indirect cost of crafting the product.To calculate the total cost of the production department or to calculate each product¶s total cost, it is necessary to allocate some of the rent (and other indirectcosts) to the department and to the product.Costs usually charged directlyProject staff

ConsultantsProject suppliesPublicationsTravelIndirect costs are those for activities or services that benefit more than one project.Their precise benefits to a specific project are often difficult or impossible to trace.For example, it may be difficult to determine precisely how the activities of thedirector of an organization benefit a specific project.It is possible to justify the handling of almost any kind of cost as either direct or indirect. Labor costs, for example, can be indirect, as in the case of maintenance

personnel and executive officers; or they can be direct, as in the case of projectstaff members. Similarly, materials such as miscellaneous supplies purchased in bulk²pencils, pens, paper²are typically handled as indirect costs, whilematerials required for specific projects are charged as direct costs.Indirect costs represent the expenses of doing business that are not readilyidentified with a particular grant, contract, project function or activity, but arenecessary for the general operation of the organization and the conduct of activities it performs. In theory, costs like heat, light, accounting and personnelmight be charged directly if little meters could record minutes in a cross-cuttingmanner. Practical difficulties preclude such an approach. Therefore, cost allocation plans or indirect cost rates are used to distribute those costs to benefiting revenuesources.Looking at it another way, indirect costs are those costs that are not classified asdirect. Direct costs can be identified specifically with particular cost objectivessuch as a grant, contract, project, function or activity. Direct costs generallyinclude:



Salaries are wages (including vacations, holidays, sick leave, and other excusedabsences of employees working specifically on objectives of a grant or contract ± i.e, direct labor costs).Other employee fringe benefits allocable on direct labor employees.Consultant services contracted to accomplish specific grant/contract objectives.

Travel of (direct labor) employees.Materials, supplies and equipment purchased directly for use on a specific grant or contract.Communication costs such as long distance telephone calls or telegramsidentifiable with a specific award or activity.

Costs either charged directly or allocated indirectlyTelephone chargesComputer useProject clerical personnel

Postage and printingMiscellaneous office suppliesCosts usually allocated indirectlyUtilitiesRentAudit and legalAdministrative staff Equipment rental

==========================================================

c) Bundling

Bundling is a practice in sales that refers to packaging more than one item together to induce customers to purchase a main product. This can also refer to offeringseveral services at once. For instance, a carpet cleaner could bundle services byoffering free cleaning of a hall carpet with the purchase of cleaning two rooms.Bundling may furthermore refer to the "gift with purchase" concept in sales. If you¶re going to get something for ³free´ you may be more likely to buy somethingelse.Often you¶ll find examples of bundling in the computer software and gamingindustry. A computer may be sold with free software bundles, and various programs that help you increase the computer¶s functionality. Most computerscome bundled with programs like web browsers , word processing programs, andoffice management programs. Video game systems are also likely candidates for bundling. New game systems may be sold with a game, with extra controllers,with memory cards, or a variety of other features.



Another common instance of bundling in the gamer world is expansion packs.Once a game has had several expansions or newer versions emerge, all versions of the game may be sold together. If you¶re a big fan of the particular game and wantthe most play out of it, buying bundled games can be a great way to go, because buying the expansions separately would be likely to cost more money.

Though bundling may have some advantages, there are some cases where bundling is disadvantageous. For instance, when new game systems are released,they often are sold in bundle format, especially with games and extra controllersthat you may not want or need. Though they represent a savings than if you wereto purchase all the parts separately from the gaming system, you may not needmore than one game controller, and you may not want the particular game soldwith the system. Generally retailers are not allowed to ³unbundle´ things sold as aset, and people may end up having to pay quite a bit more than they want becauseonly bundled game systems are available.

====================================================================================================================

=============================THE END=====================

ignou mbs ms-09 solved assignments 2010

Documents