economics assignment of lpu mba hons

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ASSIGNMENT 2 OF ECONOMICS Submitted By Submitted to Dheeraj Kumar Miss Poona Kansra MBA (Hons) 025 Lecturers LHSB

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Page 1: Economics Assignment of LPU MBA Hons

ASSIGNMENT 2

OF

ECONOMICS

Submitted By Submitted to

Dheeraj Kumar Miss Poona Kansra

MBA (Hons) 025 Lecturers LHSB

Page 2: Economics Assignment of LPU MBA Hons

QNS.1)There are two fast food outlets in the city of Bhopal. Experience tells that they have tried

to engage in price war to win more customers but have not gained substantially in terms of

profits. Can these outlets collude to increase profit?

ANS-1)Yes, these outlets can be collude to increase profits because if they collude, the price of

both two fast food outlets are same and both attract equal number of customer. After this Non

price competition will decide the profitability.

QNS-3) A particular car manufacturer regards his business as highly competitive, as he is keenly

aware of his rivalry with the other car manufacturer. Like others, he undertakes vigorous

advertising campaigns and seeks to convince potential buyers of the superior quality and better

style of his automobiles and reacts very quickly to claims of superiority by rivals. Is this what

meant by perfect competition from an economic point of view? Explain.

ANS-3) No, this is not the case of perfect competition as in case of perfect competition the

advertisement is not vigorously done in this as the product is identical with cost being the factor

taken into consideration.

Page 3: Economics Assignment of LPU MBA Hons

QNS-4 ) Is monopoly always socially undesirable? Take any real life example of monopoly in

India and build your logic in favour of or against this?

ANS-4) No, monopoly is not always undesirable because sometimes monopoly is for the social

welfare and it is beneficial for the poor because it gives cheaper goods and services.Example of

monopoly are found in Indian railways, Water supply by government, Electricity,Post offices.

But in case of the private sector whose motive is only profit maximisatoin is not desirable

because they control over the supply and will adopt his independent price policy because in

monoply they are the only seller in the market.

QNS-5) Compare the market environment of monopolistic competition with that of perfect

competition, quoting real world business examples.

ANS-5) There are some important points which compare the market environment of

monopolistic competition with that of perfect competition-

1.In monopolistic competition(M.C) products of all the producers are different in one respects or

other while in perfect competition(P.C) all products are identical.

2. Monopolistic competition is a real concept while in perfect competition it is not real

concepts,In real life it is not found.

3.In monopolistic competition the number of buyer and sellers is relativily less while in perfect

competition the number of buyer and seller are quite large.

4.In( M.C) buyers and seller do not have perfect knowledge of market condition while in (P.C)

buyers and seller have perfect knowledge of market conditions.

5.In M.C selling cost play an important while in P.C selling cost do not play an important role.

6.In M.C demand curve slopes downward from left to right while in P.C it is in the form of a

straight line parallel to the base line.

Page 4: Economics Assignment of LPU MBA Hons

7.In M.C the quality of the product can be decline while in P.C it can not be decline.

QNS-6) as a consumer, would you favour advertising in a monopolistically competitive

industry? Would your answer be different if you are a manager of a firm in this industry?

ANS-6) Yes, because with the help of advertising consumers understand the following situation

of market such as-

It is helpful knowing the Number of producers and sellers who sell his product and

services at cheaper cost.

Product differentiation-It is helpful in knowing the “Product of the producers are different

in respect or other”.

Price policy-It is helpful in knowing the price of different products which sell by seller

and producers.

It is also help in knowing the purchasing cost of products.

No, because 1.With the help of advertising we create awareness

2. With the help of advertising we show our product better than other competitor.

Page 5: Economics Assignment of LPU MBA Hons

QNS-7) Which of the following can be identified to be in a monopolistic competition and

monopoly? Defend your answer with suitable examples.

i. Maruti Suzuki

ii. Microsoft

iii. Indian Railways

iv. Orkut (social networking website)

ANS-7(i)Maruti Suzuki-It is example of monopolistic competition because of some reasons

Products of all the producers are different such as Hyundai (Santro),Tata

moters(Indica),etc.

Other reasons are also such as

There are not perfect knowledge of market condition to buyer and sellers

Price policy(different producers and sellers charge different price)

Every products of all producers are different in respect or the other such as Hyundai

(Santro), Tata moters (Indica) and Maruti Suzuki all are have different prices.

ii)Microsoft-It is the example of monopolistic competition because of some reasons

Products of all the producers are different such as Apple and Linux are also make operat-

ing system.

Price policy (different producers and sellers charge different price)

iii)Indian Railways--It is the example of monopoly competition because of some reasons

In railways there is only control of government.

There is no competition because there single service provider.

There is no competition regarding price policy because government is the one who

provide service.

In this new firm can not enter.

Page 6: Economics Assignment of LPU MBA Hons

iv) Orkut (social networking website)- It is the example of monopolistic competition because

of some reasons-

There are so many social networking website are also presents such as facebook,linked

in, yahoo messenger etc.

The demand of the social networking websites are elastic because there are some close

substitutes such as facebook,l inked in yahoo messenger etc.

The entry and exit of the social networking website are easy.

QNS-8) what are the economic entry barriers which create monopoly? Illustrate with examples

from Indian economy.

ANS-8) Economic barriers which create monopoly are

Government regulations - Requirements for licenses and permits may raise the

investment needed to enter a market, creating an effective barrier to entry. Example-

Indian railways, Electricity supply, Water supply etc.

Control of resources - If a single firm has control of a resource essential for a certain

industry, and then other firms are unable to compete in the industry. Example-The

example of the aluminum company of America(Alcoa)

Cost advantages independent of scale - Proprietary technology, know-how, favorable

access to raw materials, favorable geographic locations, learning curve cost advantages.

Research and development - Some products, such as microprocessors, require a large

upfront investment in technology which will deter potential entrants.

Page 7: Economics Assignment of LPU MBA Hons

Investment - That is especially in industries with economies of scale and/or natural

monopolies.Such as petroleum products in India.

QNS-9 Which between monopolistic competition and monopoly is economically more

inefficient in allocation of resources? Support your answer with justification?

ANS-9) Monopoly competition is economically more inefficient in allocation of resources

because in this there is more burden and competition with the sole control over the market so

allocation is possibly not efficient because at times it is good to have competition to increase

efficiency which is the case in monopolistic competition.

QNS-10) Which of the following companies can be identified to be a monopoly? Defend your

answer with justification:

ANS-10

i. Apple Inc. ( iPods Monopoly as most of the features are of this market. Quality

and the features are unique)

ii. Google (Internet search engine)

iii. Reliance India

IV. Orkut (Social networking website)

QNS-11) Is persistent dumping good or bad for consumers in the importing country? Against

what type of dumping would the nation want to protect itself? Why?

Page 8: Economics Assignment of LPU MBA Hons

ANS-11).Yes persistent dumping is good for the consumers in the importing country as the

continuous supply at the lower price is going to benefit consumers. The type of dumping which

should be stopped is predatory dumping as it will affect the importing suppliers of the same

commodity.

QNS-12 ) There are practically very few real-life instances of perfect competition. Even so

debateable whether these examples meet all the criteria of perfect competition. Which firm

would you like to specify for perfect competition in Indian scenario? Support your answer with

relevant reasons.

ANS-12) Even though the perfect competition is very rear to be seen in the real life but taking

into consideration the Indian market we can say that Indian agricultural firm is an example as

there are large number of suppliers supplying the identical product with perfect substitutes and

elastic demand.

QNS-13) Do you see the cartel arrangement in any of the oligopolistic industries in India? If so

explain your observation?

ANS-13) Yes, I saw cartel arrangement in oligopolistic industries in India like in Petroleum

industry and in Cement industry because in petroleum industry different oil company makes a

pool and set the price of oil and also in case of cement industry.

Page 9: Economics Assignment of LPU MBA Hons

QNS-14) Three business-school graduates decide to open a business, and all three devote their

full time to its management. What cost would you assign to their time? Is this an explicit or

implicit cost?

ANS-14) Implicit cost (These are the cost which are not paid in cash to anyone but are included

in the books of account for calculating total cost of production)

QNS-16) Are service industries more likely to be near the monopoly or competitive end of the

spectrum of market structures? Why?

ANS-16) No, it is not likely to be in monopoly as the growth in service industries is quite high

and the industries are becoming service oriented with major industries being the part of

it .Taking the Indian example we have transportation, Telecommunication and Banking as the

major service providers with other examples as well so in my opinion it is not possible.

Page 10: Economics Assignment of LPU MBA Hons

QNS-19) The marketing manager of airline company has the following facts and figures before

him/her.

The flight from New Delhi to Kochi was bringing in Rs. 2,00,000 per day. The direct operating

expenses (wages,fuel and food) are Rs. 1,80,000 per day. Interest cost of loan is Rs. 40,000 per

day.

i. Should the flight be continued?

ii. State the conditions under which the flight should continue or should not con-

tinue.

ANS-19(i) No,because on the basis above question the total expenses of the flight is Rs

220,000 and total income is Rs200000,hence the flight is in loss of Rs 20,000.

(ii)if the income of the flight is more than Rs 2,20,000 then flight should continue be-

cause if it happenes then flight would gain profit.But in case the income is less than

Rs2,20,000 the flight should not continue because flight would get loss.