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CHRIST UNIVERSITY, BANGALORE-560029

I MBA End Trimester Examination September - 2012 Code: MBA135 Sub: MANAGERIAL ECONOMICS I Max. Marks: 100 Duration: 3 Hrs

SECTION A Answer any 10 questions. 10 X 2 = 20

1. Define Managerial economics. 2. Is it correct to use managerial economics and business economics synonymously? Substantiate your arguments. 3. What is cross elasticity? 4. Qd=100-2P is the demand equation for a commodity. What is the slope of the demand equation? Also find the inverse demand curve for the equation. 5. "Elasticity at all points of a straight line demand curve will be the same." State whether the statement is true with the help of an example. 6. What is MRS? How is it measured? 7. A budget line is nothing but the demand curve of the consumer expressed in terms of two goods given the money income and prices of these two commodities. Explain. 8. What is the difference between fixed cost and variable cost? Write any two examples? 9. What is Average revenue? Give two examples? 10. In the case of dumping the price elasticity of the product in the domestic market is higher than at the foreign market. State whether the statement is true or false and defend your position. 11. Explain tacit collusive behaviour with an example. 12. In cournot model, each firm tries to maximize profits by keeping the prices constant True/ False.

SECTION B Answer any 6 questions. 6 X 5 = 30

13. Managerial Economics is normative rather than positive. Substantiate the statement in the light of the characteristics of managerial economics. 14. Would you consider the theory of revealed preference to be superior to cardinal and ordinal theories of utility? Defend your answer with logic 15. Quantity demanded of a product decreases from 4000 units to 3000 units when the price of the product increases from Rs 40 to Rs 45. If the income effect is estimated to be 900, calculate the substitution effect of the price changes. 16. For each of the following equations determine whether the demand is elastic, inelastic or unitary elastic at the given price. a) Q= 100-4P; P=20 b) Q=1500-20P; P=5 c) P=50-0.1Q; p=20 17. Explain the derivation of Envelope curve with graph?

18. From the following Calculate AFC, AVC, ATC and MC


Total Quantity (TQ) 0 1 2 3 4 5 6 7 8 9 10 Total Fixed Costs(TFC) 100 100 100 100 100 100 100 100 100 100 100 Total Variable Costs(TVC) 0 25 40 50 60 80 110 150 300 500 900

Explain the derivation of Envelope curve with graph? 19. Is consumer surplus more in terms of perceived value pricing or value pricing? Discuss 20. Give an example each from the business world for a) Constant sum game b) Zero sum game and c) Non zero sum game

SECTION C Answer any 3 questions. 3 X 10 = 30

21. Rama is pursuing her MBA education at a business school. She receives utility from the grade (marks) she receives in her exams and the leisure she gets. Her utility functions from the two goods is described by the following function a) U= 25GL b) Where Utility G =grade she earns and L leisure she enjoys. At her business school, grade is assigned in a letter grade which is convertible into a numerical value ranging from zero to 10. As one would expect the grade depends on time spent on studies (Ts) and the relationship between the two is described by the following: G=0.8 Ts. Her constraint is the time at her disposal, which is 24 hours in a day, thus 24=Ts+L Advice her on the following issues. What is her indifference curve if she wants to earn a utility level of 1000? Also, for utility levels of 1500 and 2000? Draw her indifference curves map. Determine her budget line. Suggest the optimum allocation of time between studies and leisure for Rama. 22. In the Gourmet at Christ University Mr. George the seller of burgers have found that the price elasticity of demand for veg burgers is -12. He has decided to introduce vegetarian lasagna in his shop. After introducing lasagna he found that the cross price elasticity of burgers to lasagna is 3. George decided to reduce the price of burgers by 15%.

a) Calculate the change in demand for lasagna as a result of the change in the price of burgers. b) Explain with reason what changes will happen to the demand of burgers as a result of price change. 23. Analyze the importance of U shaped average cost of a firm a) in fixing the volume of goods to be produced in short period and b) in deciding the size of the plant in the long run? 24. A pharma firm supplies two markets - A and B. The demand in market A is Qa=160080Pa and the demand in market B is Qb=2400-100Pb. Marginal cost of the firm is MC=4.5+0.005Q. a) Find the total marginal revenue function. b) If the firm decides to sell 650 units, what should be the amount allocated to market A to maximise the revenue? c) What prices should the firm charge in two markets if the firm decides to discriminate in two markets? 25. Identify the market structure of the following companies? Justify your answer with proper explanation a) Pizza Hut b) Tata Steel c) Apple d) Renault Nissan e) Idea Cellular

SECTION D Case Study ( Compulsory ) 1 X 20 = 20

26. Through its relatively brief history, the Reliance group has specialized in taking gambles, sometimes huge ones. A pattern repeated time and again such as when it set up capacities for polyester staple fiber which was the same size as the domestic market or when it put up a 27 million tonne refinery in Jamnagar which is close to a third of Indias demand for petroleum products. Theres no gamble quite so audacious as the one that underway. The Rs. 25,000 crore Reliance Infocom project thats currently taking shape aims at no less than a complete remake of Indias telecom landscape to emerge as Indias number one telecommunications company, ahead of the state owned behemoth Bharath Sanchar Nigam Ltc. Its also an attempt to realign Reliances revenues and profits which today originate entirely from manufacturing with Indias economic profile, in which services account for over 40% of GDP Reliances revenues will have to become diversified with a large proportion originating from services which would be in keeping with the changing structure of Indias economy says Mukesh Ambani, Vice Chairman of Reliance Industries. Rs. 8000 crore will be invested over a three year period. As of now, its full steam ahead for Reliances Infocom plans. As it had done earlier in oil and gas, Reliance plans to emerge as an integrated player, focusing on the entire range of telecom services ranging from high speed internet access for business and consumers, call centers, data centers, cellular phone services and domestic and international long distance telephony. Apart from the gamut of telecom services, Reliances integration

plans are in one respect unique in the telecom industry. If senior group officials are to be believed, the company has plans to assemble cellular phones and set-top boxes. At the core of the Infocom project is 115,000 km fiber optic backbone covering 115 cities across 12 States, accounting for over 50 per of Indias GDP. The company plans to become what the industry jargon refers to as a carriers carrier, where it hires out infrastructure to other telecom operations. Here Reliance, along with the Bharti Group, has obtained a license for providing domestic long distance services. In fact, these are only two companies to do so. The total domestic long distance market is worth Rs. 6000 crore. Of this, the market available to the long distance operator is likely to be Rs. 2,400 crore, according to a December 2000 Merrill Lynch report. This is based on a 30: 40 revenue share between the originator, the carrier and the last mile access provider. However, Reliance would hope for a larger share since it plans to fill all the three roles. Merrill Lynch estimates that the domestic long distance revenues accruing to the carrier would amount to Rs. 2760 crore in 2002 03 of which Reliance is expected to garner 20% or Rs. 260 crore. As part of it plans to enter international long distance telecommunication, Reliance has already submitted an expression of interest for international long distance operator VSNL. The total international long distance market in India right now is Rs. 4900 crore. Reliances own estimates for revenue and profitability have not been made publicly available. However, internal estimates reportedly project revenues of Rs. 30,000 crore which is roughly a third of the total telecommunication market of around Rs. 1, 00,000 crore estimated for fiscal year 2004-05. The annual total telecommunications market is around Rs. 42,000 crore. These estimates are of course based on the assumptions of a rapid take-off in traffic, particularly data traffic. Check out some figures: out of the 30 million house holds that have an income over Rs. 4000, an estimated 20 million are in the urban market and 10 million in the rural market. Out of the urban people, 13 million already have fixed line connections. And out of the 10 million rural customers, 6.5 million already have fixed lines. In the light of the above: What kind of growth can one really expect for the telecommunications sector in India as such and Reliance Infocom in particular? Questions: 1. Is there such a market in India for all the huge plans that they have? 2. Can you support it as a case of economics of scope? 3. Does it not lend to monopolistic conditions?

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