MS-9 June 2013 Managerial Economics

1. “The Opportunity Cost of a product is the return that can be had from the next best alterative use.” Explain this statement using Production Possibility Curve.

2. Define demand function and explain the impact of price of complements and price of substitutes on demand function.

3. Compare and contrast Economies of Scale and Economies of Scope. Explain why it is important for managers to understand Economies of Scale.

4. Consider a monopolist facing the following demand and cost curves.
P = 50 – 2Q C = 25+10Q
(Hint: Total demand at any point P will be the summation of two quantities)
Suppose the firm is able to separate its customers in two distinct markets with the following demand functions.

P1 = 40 – 2.5Q1           P2 = 90 – 10Q2

From the above equation calculate the following:
i) Total demand
ii) Marginal Revenue
iii) Marginal Cost

5. Do you think Monopoly is undesirable? Take any real life example of monopoly in India and state its advantages and disadvantages.

6. Suppose you are working as a marketing head for an organization producing soft drinks. The company is planning to float a new juice which is blue in color. What lessons from the concept of price elasticity can you draw while fixing the price for this new product?

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