You are on page 1of 6

Assignment 42

( 1)Pricing policies and objective of pricing policy from mb0042 fom amumba assignment Ans It is the solved assignment of - Define Pricing Policy. Explain the various objective of pricing
policy. It is the question of MB0042 (Managerial Economics) SMU MBA assignment. There are already some solved assignments for MB0042 - Law of Variable Proportion, Elasticity of Demand and Price Discrimination. Pricing Policies: The decision of pricing is very important in any business. Price once fixed is never permanent. It needs to be reviewed and revised according to the market conditions. Objectives of Pricing Policy: To Maximize Profits: Every firm tries to maximize their profits. So they should have a price policy, which fetches them maximum revenue. Every firm should have a price policy keeping the long run prospects in mind. Price Stability: Always fluctuating price is not for the goodwill of the company. A stable price always wins the confidence of customers. Capture the Market: Producers aim is to capture the market and to do so, he fixes comparatively lower price for his product, while introducing a product to capture the lion share of market. But once they gain stability and consistency they can change their price policy. Facing Competitive Situation: Every producer should fix the price, keeping the price of the competitor in mind in some types of market structure; prices are fixed in such a way so as to restrict the entry of rival firms in the industry. Ability to Pay: The price should be fixed according to the ability of consumer to pay; high price for rich customers and low for poor customers. This can be applied in case of services given by doctors, lawyers etc.

Assignment 42 Prices once fixed cannot be kept constant forever; it has to be revised according to the condition and the economic situation. The main objective of pricing policy is to maximize profit for the firm, stability is necessary to win the confidence of the customers and it should be able to capture enough market for the firm.

(2)law variable propotionfrom mb0042 Ans


Explain the Law of Variable Proportion. The question has been solved for MB0042 (Managerial Economics) SMU MBA assignment. I have already submitted the solved assignments for MB0042 - Elasticity of Demand, Price Discrimination and Marginal Efficiency of Capital. Law Total Product (TP) of Total quality Variable of output produced by Proportion: a firm.

Average Product (AP) The total produced by a firm divided by the quantity of variable factors used to produce. AP AP TP Q Number of = Average Total Variable TP/Q Product Product Factors

Marginal Product (MP) Change in TP caused as a result of additional unit of Variable factor employed to the combination of Fixed Factor. Law of variable proportion is also called Law of Diminishing Returns. It examines the production function when one factor varies keeping the quantities of other fixed factors constant. That is how the output varies when Variable Factors are employed to the fixed factors. The law states, when Variable factors are increased in equal doses keeping the Fixed Factor constant, the total product will increase. But after a certain point it will increase at a diminishing rate and finally the total product starts decreasing. Assumption:

Assignment 42

This 1.

law The

is state

subject of

to

certain is

assumptions: given

technology

2. Only one factor of production must be variable. In the example illustrated below, we have taken it as labour 3. There are some inputs, which are kept constant of fixed

In the above table, first column shows fixed factor as the land, say 5 acres. Second column shows labour as variable factor. Third column shows Total Product which changes due to change in the variable factor. Fourth column shows AP which is derived by dividing TP with Q. Fifth column, is MP which is derived by change in TP with change in Q. In the above table, at the fourth unit of variable factor, the total product reaches maximum and then starts has reached its maximum at third unit of variable factor. Marginal product starts falling first, average product follows it and total product falls last.

(3)elasticity ofdemand and its factorsfrom Ans This is the solved assignment of What is Elasticity of Demand? Explain the factors determining
it. It is written for MB0042 (Managerial Economics) SMU MBA assignment. We already have explained about price discrimination and categories of environmental stressors. Factors Influencing Price Elasticity of Demand: Nature of Commodity - By the nature of commodity, we divide them into comfort, luxury and necessity. For luxuries and comforts the Ep> 1 because when prices of these commodities decrease, the demand for these commodities will also increase; whereas in case of necessities, the Ep<1 because when the price of these commodities decrease, the demand for these commodities will increase by less than proportionate.

Assignment 42 Availability of substitutes For those commodities which have enough substitutes in the market, the price elasticity is of more than one, because when the price of a commodity has many substitutes, the consumer will shift to the substitute available in the market. Number of Uses Those commodities which have many or multiple uses like coal, milk. For such commodities, the elasticity is more than one as they can be used for more than one purpose. So, if the price of such commodity decreases, there will be increase in the demand. But for those commodities which have very less use of limited uses, the demand will be relatively inelastic. Durability of commodity Durable goods is those which last for many years. E.g.: motorcycle, TV, washing machines, etc. The price elasticity of demand for durable goods will be more than one because when the price of such commodities increases, the demand will increase, but for the commodities like fish, vegetables etc., which come under perishable goods, the elasticity of demand will be less than one as these commodities cannot be stored. So even if the price decreases, the demand will not increase. Consumers Income The price elasticity of demand will be relatively elastic for overall commodities which the consumers income is high.

(4) price discrimination for Ans What is Price Discrimination? Explain the basis of Price Discrimination. You need to solve the
assignment question for MBA Semester 1 MB0042 Managerial Economics. It is the assignment of fall session. You can check out other assignment questions also such as - Different Categories of Environmental Stressors and Process of Negotiation. The measurement of this sensitivity in terms of percentage is called Price Elasticity of Demand. According to Marshall, Price Elasticity of Demand is the degree of responsiveness of demand to the chance in price of that commodity. Perfect elastic demand is a case of theoretical extremity. When a small change in price leads to a very substantial change in quantity demand, the price elasticity is numerically infinite. When a demand for the product is independent of price, such demand remains unaffected with any magnitude of change in price. To make relatively elastic simpler, we can say that any small change in price leads to a big change in quantity demanded. It can be an increase or decrease. When there is less then proportionate change in demand to the change in price, we say that the demand is relatively inelastic that is Ep<1.

Assignment 42

In numerical co-efficient of price elasticity of demand in different cases, we find that its value ranges from zero to infinite. For those commodities which have enough substitutes in the market, the price elasticity is of more than one, because when the price of a commodity has many substitutes, the consumer will shift to the substitute available in the market. The price elasticity of demand for durable goods will be more than one because when the price of such commodities increases, the demand will increase, but for the commodities like fish, vegetables etc., which come under perishable goods, the elasticity of demand will be less than one as these commodities cannot be stored.

(5) marginal efficiency ofcapital and factors of mec Ans It is the solved assignment of What is Marginal efficiency of Capital? Describe the factors
determine MEC. The question has been submitted for MB0042 (Managerial Economics) SMU MBA assignment. There are already Elasticity of Demand and Price Discrimination from MB0042. Managerial Efficiency of Capital (MEC) any investment decision depends not only on rate of interest but also whether or not the expected rate of returns on the investment is greater than cost of borrowing the funds,. In these two factors, the MEC is an important factor because MEC is the expected rate of returns from the investment. If the returns expected are low, then the investment is not profitable because in short run, rate of interest is stable. In MEC, capital means the real productive assets. MEC depends on expected rate of returns of a capital asset over its life time which is also called Prospective Yield and the supply price of capital assets. Any business man will weigh the prospective yield with the supply price before investing. Factors Affecting MEC: Expected demand for future if the demand is expected to increase, the decrease in future, the prospective yield will be low and so the MEC. So the change in expectation gives sudden ups and downs in investment decisions. Level of income when people experience gains through reduction in tax or gains in bullish market, the businessmen become more optimistic as they know when income increases, the demand will increase and so the MEC is high and it is the other way when there are huge losses. When consumption changes In real life, whenever there is a shift in consumption Function, the MEC

Assignment 42 also changes. Business expectation Investment is something which gives returns only in the future. Any decision on investment depends on the return which the businessmen expect in future. If the environment is optimistic that leads to more expectations in future. MEC and Business Expectation: MEC depends on the businessmens expectations, which increases due to invention and goes down due to any threat to the returns on investment. It is also affected by the annual spirit of the entrepreneur. That is why investments are not always calculations but also irrational optimism. Business expectations are based on existing events and partly future facts.

You might also like