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managerial economics
Managerial Economics 8th Edition D N DWIVEDI - Solutions
Maximizeπ = 3 X + 6 Y
What is linear programming technique? Discuss usefulness of its application to practical business problems. Illustrate your answer by using a linear programming problem of production planning.
Which of the following statements are true?(a) Economic rent is the same as economic profit.(b) Imputed cost is the rent of hired building.(c) When AC = MC, AC is minimum.(d) When MC is rising AC > MC.(e) Output is optimum when AC = MC.[Ans. ( a), (c) and ( e)]FURTHER READING Baumol, William J.,
From the following data find out: ( i) PV ratio, and ( ii) BEP.Selling pricè50 Cost pricè40 Fixed cost`5,000[Ans. ( i) 20; ( ii) 250]
Distinguish between the following:(a) Marginal cost and incremental cost;(b) Business cost and full cost;(c) Actual cost and imputed cost;(d) Private cost and social cost of private business.
(a) Discuss assumptions and limitations of break-even analysis.(b) A firm has purchased a plant to manufacture a new product. Cost data for the plant is given below:298 Part III: PRODUCTION AND COST ANALYSIS Estimated annual sales 24,000 units Estimated costs:Material`4.00 per unit Direct
Suppose sales and cost data of a company for a year are given as follows.`Net Sales 100,000 Cost of goods sold:Variable cost 40,000 Fixed cost 10,000 Gross profit 50,000 Selling costs:Variable cost 10,000 Fixed cost 5,000 Net Profit 35,000 (a) Compute the break-even point.(b) Forecast the profit
(a) What is meant by break-even analysis? What purpose does it serve in business decisions?(b) Suppose cost and revenue functions of a firm are given as follows.TC = 500 + 20 Q and TR = 25 Q Find the output that breaks TC and TR even.
(a) What is meant by diseconomies of scale? Why do diseconomies of scale arise?(b) How do different diseconomies of scale affect the cost of production?
(a) What is meant by the economies of scale? Distinguish between internal and external economies of scale.(b) What are the sources of internal and external economies of scale of production?
What is menat by learning curve? How is learning curve different from the theoretical long-run average cost curve?
Illustrate and explain the derivation of the long-run average and marginal cost curves. Explain the behaviour of the long-run average cost curve.
What are the uses of cost function in business decisions? Suppose cost function of Yougesh Woollen Mills is given as follows.Q = 500 + 10 Q + 5 Q 2(a) Find the output that minimizes average cost.(b) Suppose the firm is producing only 8 units of output. Should the firm increase or decrease the
Find( i) equation for AC and MC;( ii) AC and MC for 10 units of output;( iii) the output Q at which AC = MC.
(a) Why is short-run average cost curve U-shaped? Illustrate and explain the relationship between SAC and SMC.(b) Suppose a cost function is given as TC = 100 + 5 Q + Q
A manufacturing firm produces and sells 3,000 units of a product X, where its AC = MC and makes only normal profit. The firm get an additional order of 500 units at the ruling price. Should the THEORY OF COST AND BREAK-EVEN ANALYSIS 297 firm, a profit maximizing one, accept or reject the order.
Explain and illustrate the relationship between marginal cost, average cost, and total cost assuming a short-run non-linear cost function?
When MC changes, AC changes (a) at the same rate, (b) at a higher rate, or (c) at a lower rate?Illustrate your answer through a diagram.
When the law of diminishing returns begins to operate, then(a) TVC begins to fall at an increasing rate;(b) TVC rises at a decreasing rate;(c) TVC falls at a decreasing rate;(d) TVC rises at an increasing rate; or(e) TVC remains constant.Which of the statements is true?
Which of the following statements is true?(a) When Q = O, ( i) TC = TVC; ( ii) TC > TVC; or ( iii) TC < TVC; ( b)When MC = O, ( i) TC is falling; ( ii) TC is increasing; or ( iii) TC is constant.
What is opportunity cost? Give some examples of opportunity cost. How is the concept of opportunity cost relevant for managerial decisions?
Explain and illustrate the distinction between the following:(a) fixed cost and variable cost(b) actual cost and opportunity cost.
Explain the following cost concepts with examples.(a) Variable cost(b) Fixed cost(c) Explicit cost(d) Implicit cost
Suppose production department of a company estimates its production function as given below.Q = K 0.6 L 0.4(a) What kind of returns to scale does this production reveal?(b) Suppose the power of L is raised to 0.6. What returns to scale does it give?
Which of the following gives the condition for the least-cost combination of inputs?(a) PL/ PK = MRTS(b) PL/ PK = MPL/ MPK (c) MPL/ PL = MPK/ PK (d) MPK/ MPL = Δ L/Δ K (e) All of the above
Show the effects of change in input prices on the isocost line. How is the optimum combination of inputs affected if (a) price of only one input decreases, and (b) prices of both the inputs decrease proportionately?
Suppose a Cobb-Douglas production function is given as Q = L 0.5 K 0.5(a) Find the degree of production ‘function’,(b) Find the law of production it reveals, and(c) Find the output for 10 units of labour and 5 units of capital.
Suppose a short-run production function is given as Q = 10 L + 15 L 2 – L 3 where Q is output and L is labour employed per unit of time.( i) Derive MPL and APL schedules;( ii) Derive MPL functions;( iii) Find the output at which APL = MPL; and ( iv) Find L for producing 600 units of
(a) What is the marginal rate of technical substitution?(b) Illustrate graphically the substitution effect of a change in relative prices of inputs.
Suppose a production function is given as Q = – L 3 + 5 L 2 + 10 L( i) Which law of production is revealed by this production function?( ii) At what level of labour employment does the total production begin to decline?[Ans. ( i) The law of diminishing returns, ( ii) Five workers]THEORY OF
Determine whether the following production functions show constant, increasing or decreasing returns to scale:(a) Q = L 0.60 K 0.40 (b) Q = 5 K 0.5 L 0.3 (c) Q = 4 L + 2 K
Suppose a short-run production function is given as follows:Q = 2 L 2 + 0.2 L 3 where Q = output and L = variable input.Find the following:(a) marginal product function,(b) average product function, and(c) value of L that maximizes Q.
Find(a) slope of the isocost; and (b) equation for the isocost.Δ Pl/Δ Pk = 2.5, (b) 20 = 2 K + 5 L]
Supposing price of capital, Pk = `2 and price of labour, Pl = `5 and Q =
Distinguish between economies and diseconomies of scale. Why do firms enjoy economies of scale by increasing scale production in the first stage and diseconomies of scale in the later stages of production?
What is meant by laws returns to scale? Explain the laws of returns to scale by using isoquants.What are the factors behind the increasing and decreasing returns to scale?
What is meant by economic region? What determines the scope of economic region? How is economic region determined in an indifference map?
What is meant by optimum combination if inputs? What are the technical conditions for the optimum combination of inputs? Explain and illustrate the determination of optimum combination of inputs by using isoquants and isocosts.
What is meant by marginal rate of technical substitution? Why does marginal rate of technical substitution decrease along an isoquant convex to origin?1l. What are the technical conditions for the least-cost combination of inputs? Explain and illustrate the determination of the least-cost
What is meant by isoquant? How are isoquants different from indifference curves? What are the properties of isoquants?
What is meant by the laws of returns to scale? What are the factors responsible for increasing returns to scale? What are the reasons for decreasing returns to scale?
Distinguish between short-run and long-run production function. Suppose a production function is given as Q = 10 Z, + 15 L2 – L 3.(a) What law of production is indicated by this production function?(b) What number of labour will maximize the output?
(a) What is meant by the marginal revenue product of a variable input?(b) How is the optimum level of employment of a variable input determined?
Explain the laws of returns to variable proportions. What are the factors that cause increasing and decreasing returns to a variable input?
How is short run and long run determined in the context of production of a commodity? How are short-run laws of production different from the long-run laws of production?
State and illustrate Cobb-Douglas production function. What are the properties of Cobb-Doulas production function?
Define production function. How is production function formulated?What purpose does a production function serve in production analysis?
What is meant by production? Distinguish between fixed and variable inputs.
Suppose an Economic Research Centre has published data on GDP and demand for refrigerators as given below.Year 2000 2001 2002 2003 2004 2005 2006 GDP (bill. `)20 22 25 27 30 33 35 Refrigerators (mill. units) 50 60 80 80 90 100 120(a) Estimate regression equation R = a + bY, where R = No. of
Explain barometric method of demand forecasting. What is the difference between lead and lag indicators?
What are the different techniques of survey methods? Under what conditions are complete enumeration and sample survey methods chosen?
Which independent variables are relevant, in your opinion, for forecasting demand for (a) cement,(b) toothpastes, (c) electricity and (d) text books?
You are given the following data:Estimate the regression equation Y = a + bX.X 36 810 13 13 13 14 Y8 610 12 12 14 14 20(Ans . Y = 0.8125 + 3.875 X)
Demand function for the product of a shoe-manufacturing company is given as Q = –0.70 P +0.45 A (where P = price per pair and A = advertisement cost per unit). The company sells 50,000 pairs of shoes per annum at `600 per pair. What will be the annual sales if the company spends`1 lakh on
Plot the following data on a graph and find the trend equation for sales:Year 1970 1971 1972 1973 1974 1975 1976 Total sales (units)1150 1020 3050 3000 950 3060 4030
Since the Delhi government is facing socio-political problem due to sharp rise in onion price from`30 p/kg tò90 p/kg. So the government plans to import onion to meet the domestic demand for one year. The authorities want you to forecast annual demand for onion.What kind of demand function will you
Suppose you are required to estimate future demand for a branded mobile phone. What independent variables will you include in the demand function to forecast the car demand? Explain the reason for selecting the independent variables.
Explain the regression method of demand forecasting. What is the difference between bivariate and multivariate regression techniques? Which of these regression techniques will you use forecast demand for passenger cars and why?
What is Box-Jenkins method of demand forecasting? What are the techniques used in this method?Discuss the moving average method of the Box-Jenkins approach?
What is the purpose of using statistical methods of demand forecasting?Discuss the trend projection method of demand forecasting. What are the advantages and limitations of this method?
What are the opinion poll methods of demand forecasting? What is the difference between the‘expert opinion poll’ method and ‘Delphi method’? Which of the two methods is preferable under what conditions?
What is the purpose of applying the end-use method of demand forecasting? What are the necessary steps taken in forecasting demand for an industrial input? What are the advantages and limitations of this method?
What are the methods used for forecasting demand? Discuss in detail the survey methods of forecasting demand for consumer goods. What are their advantages and limitations?
What is the purpose of demand forecasting? What are the necessary steps that need to be taken for forecasting demand for a product?
Suppose individual demand schedules for A, B and C are given as follows:Price A′ s B′ s C′ s(` )demand demand demand 580 40 20 10 40 20 10 15 20 10 520 10 50 25 00 0Find( i) market demand schedule,( ii) market demand curve,( iii) elasticity when price falls from `15 tò10, and( iv) elasticity
Which of the following statements is true?( i) If price elasticity = 1, MR = 0 ( ii) If price elasticity > 1, MR > 0 ( iii) If price elasticity < 1, MR < 0
Suppose the demand function for a product is given as Q = 500 – 5 P.Find out:( i) Quantity demanded at pricè15,( ii) Price to sell 200 units,( iii) Price for zero demand, and( iv) Quantity demanded at zero price.
A publishing company plans to publish a book. It finds from the sales data of other publishers of similar books that the demand function for the book can be expressed as Q =5000 – 5 P. Find out:(a) Demand schedule and demand curve,(b) Number of books sold when P = `25,(c) Price for selling 2500
Define elasticity of price expectation ( Ee). In the context of an environment of business recession, state briefly the implication of:( i) Ee > 1, ( ii) Ee = 1, ( iii) 0 < Ee > 1, ( iv) Ee = 0 and ( v) Ee < 0.
Suppose the demand function for a commodity is given as Q = 12 – P(a) Find the demand and marginal revenue schedules,(b) Plot the AR and MR schedules,(c) Find marginal revenue when P = 10, 6 and 2, and(d) Estimate the elasticity co-efficient of the demand curve, when the total revenue is at the
Explain the following concepts separately:( i) Income elasticity of demand,( ii) Price elasticity of demand and( iii) Elasticity of price expectations.What useful information do these concepts of elasticity provide to management?
Which of the following commodities has the most inelastic demand and why?(a) Soap, (b) Salt, (c) Penicillin, (d) Cigarettes and (e) Ice-cream.
What is meant by the elasticity of demand? Suppose price elasticity coefficient for a commodity is estimated at –2. What does it mean?
(a) Distinguish between linear and non-linear demand functions.(b) What is the difference between the following demand functions?( i) Qx = 1 – 5 Px;( ii) Qx = 100 – 2 P 2 x( iii) Qx = Ap– b and( iv) Qx = ( a/ p +c) – b
List the major purposes of demand analysis from the standpoint of business management. Can managers manipulate all the variables which affect demand?
When prices of both substitutes and complements of a commodity, say X, rise, what happens to the demand for commodity X?(a) rises,(b) falls,(c) remains constant, or(d) all of the above possibilities exist
Define and distinguish between:(a) Arc elasticity and point elasticity, (b) Price elasticity and crosselasticity, and(c) Income elasticity and price elasticity.
What are the different kinds of demand elasticities? What is the importance of different kinds of demand elasticites in price management?
What is meant by the elasticity of demand? How is the elasticity of demand measured?
A publishing company plans to publish a new book. It collects sales data from other publishers of similar book. By using the data, it finds a demand function given as Q =5000 – 5 P. Find out:(a) Demand schedule and demand curve,(b) Number of books saleable at a price of `20 per book(c) Price for
Specify the nature of the following demand functions.( i) Q = 50 – 5 P ( ii) Q = 100 – P2 dd( iii) Qd = aP– b( iv) Q = ( a/p +c) – b d
Suppose monthly demand function of Ruchi, Neha and Sanchi for Pepsi are given as follows.Ruchi : D = 50 – 2 P RNeha : D = 60 – 3 P NSanchi : D = 20 – P SFind the aggregate demand function and total weekly consumption of Pepsi if price of Pepsi is fixed at `10 per bottle.
Define market demand. Suppose there are three consumers of commodity X and their respective demand schedules are given as follows.Price of X (`)Quantity of X demanded by AB C10 00 08 42 06 8 4 0 Find the market demand schedule and market demand curve for commodity X.
What is difference between linear demand function and non-linear demand function? Illustrate and explain the properties of linear and non-linear demand functions.
Distinguish between demand schedule and demand function. Suppose demand function for commodity X is given as D = a – b P . Derive the demand schedule and demand curve.x x
Distinguish between demand schedule and demand function. Suppose demand function for commodity X is given as D = a – bP . Derive the demand schedule and demand curve.x x
What are the determinants of demand for a product? How do the changes in the following factors affect the demand for a product?(a) Price of the product(b) Income of consumers(c) Price of the substitute(d) Advertisement.
How is market demand for a product classified with the purpose of business decision making?Distinguish between (a) autonomous demand and derived demand, ( b)individual demand and market demand, and (c) short-term demand and long-term demand for consumer goods.
How is market demand for a commodity derived? Derive market demand curve by assuming three individual demand curves for a product.
Define market demand. How is the analysis of market demand for a product important for the manager of the firm producing the product?
Give reasons for the following statements.(a) MU of consumer goods decreases with their consumption.(b) MRS decreases because of diminishing marginal utility.(c) Higher indifference curve yields a higher level of utility than the lower one.(d) The law of equi-marginal utility implies that MU
State whether following statements are ‘right’ and ‘wrong’.(a) Demand curve slopes’down to the right.(b) Marginal utility increases in case of prestige goods.(c) Income and substitution effects are greater than price effect.(d) Consumer equilibrium takes place where MRS = price ratio.(e)
Distinguish between the following concepts.(a) Cardinal utility and ordinal utility(b) Income consumption curve and price consumption curve(c) MU curve and demand curve(d) Substitute goods and complementary goods(e) Income effect and substitution effect
Suppose demand function for a product is given as D = 500 – 10 P. Find:(a) Quantity demanded at pricè10.(b) Price to sell 200 units.(c) Price at which demand equals zero.(d) Quantity demanded at zero price.
Which of the following sentences are incorrect?(a) Utility is not measurable.(b) Consumer is in equilibrium where MU > price.(c) Consumer surplus is maximum when MU = P.(d) MU of money does not remain constant.148 Part II: THEORY OF CONSUMER DEMAND AND DEMAND FORECASTING(e) Budget line can be
Explain and illustrate the revealed preference theory of consumer behaviour. Can demand curve be derived by applying the revealed preference theory?
What is the revealed preference theory of consumer behaviour? How is the revealed preference theory treated to be superior to indifference curve approach?
The ultimate purpose of analysis of consumer behaviour is to derive consumer demand curve.How can indifference curve be used to derive consumer demand curve?
What is meant by price effect, income effect and substitution effects of a change in price? What are the two methods of measuring income and substitution effects of a change in price?
How is consumer equilibrium affected by the change in price given the consumers income and by the change in consumer’s income, prices remaining constant?
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