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Summer-2013
Master of Business Administration- MBA Semester 1
MB0042–Managerial Economics-4 Credits
(Book ID: B1625)
Assignment (60 Marks)
Note: Answer all questions (with 300 to 400 words each) must be written within 6-8 pages.
Each Question carries 10 marks 6 X 10=60
Q1. Discuss the practical application of Price elasticity and Income elasticity of demand.
Answer. Price Elasticity is the degree to which customers respond to price changes. Price
Elasticity is if a small change in price is accompanied by a large change in quantity demanded,
the product is said to be elastic (or responsive to price changes). A product is inelastic if a large
change in price is accompanied by a small amount of change in demand.
Q2. Explain the profit maximization model in detail.
Answer. A process that companies undergo to determine the best output and price levels in
order to maximize its return. The company will usually adjust influential factors such as
production costs, sale prices, and output levels as a way of reaching its profit goal. There are
two main profit maximization methods used, and they are Marginal Cost-Marginal Revenue
Method and Total Cost-Total Revenue Method. Profit maximization is a good thing for a
company, but can be a bad thing for consumers if the company starts to use cheaper products
or decides to raise prices.
Q3. Describe the objectives of pricing Policies.
Answer. Pricing Policies

2. A detailed study of the market structure gives us information about the way in which prices are
determined under different market conditions. However, in reality, a firm adopts different
policies and methods to fix the price of its products. Pricing policy refers to the policy of setting
the price of the product or products and services by the management after taking into account
of various internal and external factors, forces and its own business objectives. Pricing is
considered as one of the basic and central problems of economic theory in a modern economy.
Q4. Define Fiscal Policy and the instruments of Fiscal policy.
Answer. Fiscal Policy:
Government's revenue (taxation) and spending policy designed to (1) counter economic cycles
in order to achieve lower unemployment, (2) achieve low or no inflation, and (3) achieve
sustained but controllable economic growth. In a recession, governments stimulate the
economy with deficit spending (expenditure exceeds revenue). During period of expansion,
they restrain a fast growing economy with higher taxes and aim for a surplus (revenue exceeds
expenditure). Fiscal policies are based on the concepts of the UK economist John Maynard
Q5. Explain the kinds and the basis of Price discrimination under monopoly.
Answer. Price discrimination
A monopolist may be able to engage in a policy of price discrimination. This occurs when a firm
charges a different price to different groups of consumers for an identical good or service, for
reasons not associated with the costs of production.
The practice on the part of the monopolist to sell the identical goods at the same time to
different buyers at different prices when the price difference is not justified by difference in
costs in called price discrimination. In the words of Mrs. Joan Robinson, “Price discrimination is
Q6. Define the term Business Cycle and also explain the phases of business or trade cycle in
brief.
Answer. The business cycle is the periodic but irregular up-and-down movements in economic
activity, measured by fluctuations in real GDP and other macroeconomic variables. If you're
looking for information on how various economic indicators and their relationship to the
business cycle, please see A Beginner's Guide to Economic Indicators. Perkin and Bade goes on

3. to explain: A business cycle is not a regular, predictable, or repeating phenomenon like the
swing of the pendulum of a clock. Its timing is random and, to a large degrees, unpredictable.
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