ASSIGNMENT 2 OF ECONOMICS

Submitted By Dheeraj Kumar MBA (Hons) 025 Submitted to Miss Poona Kansra Lecturers LHSB

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.

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 competition1.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.

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.

QNS-7) Which of the following can be identified to be in a monopolistic competition and monopoly? Defend your answer with suitable examples. i. ii. iii. iv. Maruti Suzuki Microsoft Indian Railways 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 operating 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.

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. ExampleIndian 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.

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. iii. IV.

Google (Internet search engine) Reliance India 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?

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.

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.

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. ii. Should the flight be continued? State the conditions under which the flight should continue or should not continue.

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 because 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.