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Xaviers Institute of Business Management Studies
Managerial Economics Question Paper
Maximum Marks: 80+20 Paper Presentation
Instructions:
- Answer all questions as per the given instructions.
- Support your answers with relevant economic theories and real-world examples.
- Clarity, depth of analysis, and logical reasoning will be given additional weightage.
Section A: Descriptive Questions (20 Marks)
(Answer any four questions, each carrying 5 marks.)
- Explain the law of demand and its exceptions with real-world examples.
Answer:
Law of Demand and its Exceptions with Real-World Examples:
- Law of Demand: The law of demand states that, ceteris paribus (all other factors remaining constant), as the price of a good or service increases, the quantity demanded decreases, and vice versa. This inverse relationship is due to the substitution effect (people switch to alternatives when prices rise)
- Discuss how cost-volume-profit (CVP) analysis helps managers in decision-making.
Answer:
Market Structures and their Influence on Pricing Strategies:
- Perfect Competition: In this market structure, many sellers offer identical products, and prices are determined by market forces of supply and demand. Pricing strategies are highly competitive, and firms are price takers. Example: Agricultural products like wheat.
- How do market structures (perfect competition, monopoly, oligopoly) influence
pricing strategies?
Answer:
Market Structures and their Influence on Pricing Strategies:
- Perfect Competition: In this market structure, many sellers offer identical products, and prices are determined by market forces of
- Describe the role of managerial economics in risk and uncertainty analysis.
Answer:
Role of Managerial Economics in Risk and Uncertainty Analysis:
- Managerial economics helps businesses navigate risks and uncertainties by applying economic theory to decision-making in uncertain environments. It provides tools for analyzing market risks, such as fluctuations in demand,
- How does foreign exchange rate fluctuation affect international businesses?
Section B: Case Studies (60 Marks)
(Answer all case studies, each carrying 20 marks.)
Case Study 1: Demand Forecasting for a New Product
Scenario:
A smartphone company, Techo-Mobile, is planning to launch a new model in a highly
competitive market. The company needs to forecast demand accurately to optimize
production and pricing strategies.
Questions:
- a) What factors should Techo-Mobile consider while forecasting demand?
Techo-Mobile should consider the following factors while forecasting demand for their new smartphone model:
- Market Trends: The overall growth or decline in the smartphone industry and technological advancements influencing consumer preferences.
- Competitor Analysis: The strategies, pricing, and market positioning of competitors launching similar models.
- b) Explain the different methods of demand forecasting and suggest the best approach for Techo-Mobile?
There are several methods of demand forecasting, each suited for different types of data and market conditions:
- Qualitative Methods:
- Expert Opinion: Consulting industry experts or key stakeholders for insights on demand predictions.
- Market Research Surveys: Gathering consumer opinions and preferences through surveys.
- c) How can incorrect demand forecasting impact the company’s profitability?
Incorrect demand forecasting can significantly impact Techo-Mobile’s profitability in several ways:
- Overproduction:
- If demand is overestimated, Techo-Mobile could produce excess inventory, leading to increased storage and distribution costs. Additionally, unsold products may need to be discounted or written off, leading to revenue loss.
Case Study 2: Cost Analysis for Profit Maximization
Scenario:
A manufacturing firm, AutoParts Ltd., is facing increasing production costs, reducing its
profit margins. The management wants to analyse fixed and variable costs to find cost
cutting opportunities.
Questions:
- a) Explain the difference between fixed costs and variable costs with examples?
- Fixed Costs: These are costs that do not change with the level of production or sales. They remain constant regardless of the number of goods produced or services rendered within a certain range of output.
- b) How can AutoParts Ltd. use marginal cost and marginal revenue analysis to maximize profit?
- Marginal Cost (MC): Marginal cost is the additional cost incurred by producing one more unit of output. It helps businesses understand the cost of increasing production and can be used to determine the optimal production level.
- c) Suggest cost-reduction strategies to improve profitability without compromising quality?
AutoParts Ltd. can implement the following cost-reduction strategies to improve profitability without compromising product quality:
- Process Optimization:
- Streamline manufacturing processes through techniques such as lean manufacturing or Six Sigma. This minimizes waste, reduces production time, and lowers operational costs without affecting the quality of the final product.
Case Study 3: Price Elasticity of Demand and Revenue Management
Scenario:
A luxury car manufacturer, Elite Motors, wants to determine the impact of price changes on
sales volume. The company is considering reducing prices to increase demand but is unsure
whether it will lead to higher revenue.
Questions:
- a) What is price elasticity of demand, and how does it impact revenue?
- Price Elasticity of Demand (PED): Price elasticity of demand measures the responsiveness of quantity demanded to a change in the price of a product. It is calculated as the percentage change in quantity
- b) How can Elite Motors determine whether demand for its cars is elastic or inelastic?
Elite Motors can determine the elasticity of demand for its cars through the following methods:
- Market Research and Surveys:
- Conduct surveys with potential customers to understand how sensitive they are to price changes. Questions could focus on whether customers would still buy the car if the price
- c) Suggest an optimal pricing strategy based on price elasticity analysis?
Based on the price elasticity analysis, Elite Motors can adopt the following pricing strategies:
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