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MB0042 — Managerial Economics

MB0042 — Managerial Economics







SUBJECT CODE & NAME MB0042 — Managerial Economics
BK ID B1625
Credit and Max. Marks 4 credits; 60 marks


Note — Answer all questions. Kindly note that answers for 10 marks questions should be approximately of 400 words. Each question is followed by evaluation scheme.



1 “Most of the firms spend considerable amounts of money on advertisement”. Explain advertising elasticity of demand and its practical applications in this context.


Answer : The impact of an increase in advertising expenditures has on sales varies by industry. For example, a commercial for a fairly inexpensive good, such as a hamburger, may result in a quick bump in sales. On the other hand, advertising a piece of jewelry may not see a pay back for a period of time because the good is expensive and is less likely to be purchased hastily.


Because a number of outside factors, such as the state of the economy and consumer tastes, may also result in a change in the


2 Explain production function in detail.


Answer : A production function shows the relationship between inputs of capital and labor and other factors and the outputs of goods and services.


Production of goods requires resources or inputs. These inputs are called factors of production named as land, labour, capital and organization. What ss Production Function in Economics with one or two variables input. A rational producer is always interested that he should get the maximum output from the set of resources or inputs



3 Explain Marris’ Growth Maximisation Model in detail.


Answer : Profit maximization is traditional objective of a firm. Sales maximization objective is explained by Prof. Boumal. On similar lines, Prof. Marris has developed another alternative growth maximization model in recent years. It is a common factor to observe that each firm aims at maximizing its growth rate as this goal would answer


4 Explain Price —output determination under monopoly.

Answer : Monopoly is that market form in which a single producer controls the whole supply of a single commodity which has no close substitute.


From this definition there are two points that must be noted:

(i)    Single Producer: There must be only one producer who may be an individual, a partnership firm or a joint stock company. Thus single firm constitutes the industry. The distinction between firm and industry disappears under conditions of monopoly.

(ii)   No Close Substitute: The commodity



5 “Investment is the second important component of effective demand”. Explain investment function.

Answer : An investment function is a concept or strategy within economics that helps to identify the connection between shifts in the national income and the investment patterns that take place within that particular national economy. In this type of situation, a function would be any variable within the framework of the economy that would motivate investors to change their typical buying and selling habits as a means of either taking


6 Write short notes on:

a) Monetary Policy

Answer :Monetary policy, measures employed by governments to influence economic activity, specifically by manipulating the supplies of money and credit and by altering rates of interest.


The usual goals of monetary policy are to achieve or maintain full employment, to achieve or maintain a high rate of economic growth, and to stabilize prices and wages. Until the early 20th century, monetary policy was thought by most experts to be of little use in influencing the economy. Inflationary trends after World War II,


b) Physical policy or direct controls

 Answer : The control of inflation has become one of the dominant objectives of government economic policy in many countries. Effective policies to control inflation need to focus on the underlying causes of inflation in the economy. For example if the main cause is excess demand for goods and services, then government policy should look to reduce the level of aggregate demand. If cost-push inflation is the root cause, production costs need to be controlled for the problem to be reduced.

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