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ASSIGNMENT
Course Code : MS-09
Course Title : Managerial Economics
1. Explain the discounting principle. Using the discounting principle calculate the present value of an
annuity of five years at Rs. 500 payments made at the end of each of the next five years at 10%
interest.
Answer : Discounting is a financial mechanism in which a debtor obtains the right to delay payments to
a creditor, for a defined period of time, in exchange for a charge or fee.[1] Essentially, the party that
owes money in the present purchases the right to delay the payment until some future date.[2] The
discount, or charge, is simply the difference between the original amount owed in the present and the
amount that has to be paid in the future to settle the debt.
The discount is usually associated with a discount rate, which is also called the discount yield.[1][1][2][3]
The discount yield is simply the proportional share of the initial amount owed (initial liability) that must
be paid to delay payment for 1 year.
2. With reference to the marketing approach of demand measurement explain any two important
sources of data used in demand forecasting.
Answer : EVALUATING THE ACCURACY OF THE REGRESSION EQUATION - REGRESSION STATISTICS
Once the parameters have been estimated, the strength of the relationship between the dependent
variable and the independent variables can be measured in two ways. The first uses a measure called
the coefficient of determination, denoted as R2, to measure how well the overall equation explains
changes in the dependent variable. The second measure uses the t-statistic to test the strength of the
relationship between an independent variable and the dependent variable.Testing Overall Explanatory

2. Power : Define the squared deviation of any Yi from the mean of Y [i.e., (Yi–Y)2] as the variation in Y. The
total variation is found by
3. How are Isoquants different from Isocost? Illustrate using graphs.
Answer : In economics an isocost line shows all combinations of inputs which cost the same total
amount. Although similar to the budget constraint in consumer theory, the use of the isocost line
pertains to cost-minimization in production, as opposed to utility-maximization. For the two production
inputs labour and capital, with fixed unit costs of the inputs, the equation of the isocost line is where w
represents the wage rate of labour, r represents the rental rate of capital, K is the amount of capital
used, L is the amount of labour used, and C is the total cost of acquiring those quantities of the two
inputs.
4 An analytical tool frequently employed by managerial economists is the break even chart, an
important application of cost functions.” Discuss this statement giving examples from any firm.
Answer : The distinction between fixed and variable costs is of great significance to the business
manager. Variable costs are those costs, which the business manager can control or alter in the short
run by changing levels of production. On the other hand, fixed costs are clearly beyond business
manager’s control, such costs are incurred in the short run and must be paid regardless of output. Total
Costs Three concepts of total cost in the short run must be considered: total fixed cost (TFC), total
variable cost (TVC), and total cost (TC). Total fixed costs are the total costs per period of time incurred by
the firm for fixed inputs. Since the amount of the fixed inputs is fixed, the total fixed cost will be the
same regardless of the firm’s output rate. Table below shows the costs of a firming the short run.
According to this table, the firm’s total fixed costs are Rs. 100.The
5. Describe how oligopolistic competition exists in the real world giving examples from FMCG
Companies.
Answer : OLIGOPOLY: A situation where there are only a few sellers in a particular economy who
control a particular commodity. They can, therefore, influence prices and affect the competition. In
India, an example of this would be mobile telephony - There are only a few operators, examples of
which are: Aortal, Idea, BSNL, Reliance
PERFECT COMPETITION: This is an economic situation that really doesn't exist, in which a bunch of
conditions are met, not the least of which are free entry and exit from a market, tons of sellers selling
the exact same product, and tons of buyers
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