MMPC 10
MMPC 10 Solved Free Assignment 2022
MMPC 10 Free Solved Assignment Jan & July 2022
Q1- “The Equi-Marginal Principle can be applied to both consumption as well as production.” Discuss this statement with the help of an example?
Ans- The Equimarginal Principle in Economics states that different courses of action should be pursued upto the point where all the courses give equal marginal benefit per unit of cost.
It claims that a rational decision-maker would certainly allocate or hire resources in a fashion that the ratio of marginal returns and marginal costs of various uses of a provided resource or of various resources in a given use is the same.
Equi-marginal principle is one of the widely used concepts in managerial economics.
This principle is also known the principle of maximum satisfaction – by allocating available resource to get optimum benefit. MMPC 10 Solved Free Assignment 2022
This principle provides a basis for maximum utilization of all the inputs of a firm so as to maximize the profitability.
In the practical world, a person may purchase more then one commodity.
Let us assume that a consumer purchases two goods A and B. How does a consumer spend his fixed income in purchasing two goods in order to maximize his total utility?
The law of equi-marginal utility tells us the way how a person maximizes his total utility.
The Equi-Marginal Principle can be applied to both consumption as well as production According to this principle, different courses of action should be pursued upto the point where all the courses provide equal marginal benefit per unit of cost.
It states that a rational decision-maker would allocate or hire his resources in such a way that the ratio of marginal returns and marginal costs of various uses of a given resource or of various resources in a given use is the same.
For example, a consumer seeking maximum utility (satisfaction) from his consumption basket, will allocate his consumption budget on goods and services such that
MU1/MC1 = MU2/MC2-………-MUn/MCn
Where MU1 = marginal utility from good one
MC1 = marginal cost of good one and so on,
Similarly, a producer seeking maximum profit would use the technique of production (input-mix.) which would ensure
MRP1/MC1 = MRP2/MC2= ….MRPN/MCRN
Where MRP1= Marginal revenue product of input one (e.g. Labour), MC1= Marginal cost of input one and so on.MMPC 10 Solved Free Assignment 2022
It is easy to see that if the above equation was not satisfied, the decision makers could add to his utility/profit by reshuffling his resources/input e.G if MU1/MC1 > MU2/MC2 the consumer would add to his utility by buying more of good one and less of good two.
Example: A multi-commodity consumer wishes to purchase successive units of A, B and C. Each unit costs the same and the consumer is determined to have a combination including all the three items. MMPC 10 Free Solved Assignment
His budget constraint is such that he cannot buy more than six units in all.
Again, he is subject to diminishing marginal utility i.e. as he has more of an item, he wants to consume less of it. Table shows the optimization example:
Unit Equi-Marginal Principle
Multi-market seller MR1-MR2 – MR3 =………… MRn
Multi-plant monopolist MC1=MC2 = MC3 = … …. MCn
Multi-factor employer MP1= MP2 = MP3 = …… – MPn
Multi-product firm M@1=M@2 = [email protected]3 = ……[email protected]N
Multi-commodity consumer MU1=MU2 = MU3 = …………. MUn
MR-marginal revenue:
MC-marginal cost:
MP-marginal product:
[email protected] – marginal profit:
MU marginal utilities.
| UNITS | A | B | C |
| 1 | 10 | 9 | 8 |
| 2 | 9 | 8 | 7 |
| 3 | 8 | 7 | 6 |
| 4 | 7 | 6 | 5 |
| 5 | 6 | 5 | 4 |
| 6 | 5 | 4 | 3 |
The utility maximizing consumer will end up with a purchase of 3A+2B+1C because that combination satisfies equi-marginalism:
MUa=MUb= MUc= 8
In the real world, often the equi-marginalism concept has to be replaced by equi-incrementalism. MMPC 10 Solved Free Assignment 2022
This is because, changes in the real world are discrete or lumpy and therefore the concept of marginal change may not always apply.
Instead, changes will be incremental in nature, but the decision rule or optimizing principle will remain the same
The equi-marginal principle is based on the law of diminishing marginal utility.
The equi-marginal principle states that a consumer will be maximizing his total utility when he allocates his fixed money income in such a way that the utility derived from the last unit of money spent on each good is equal.
Q2-(a) Explain the demand function for a particular product?
Ans-Demand function shows the functional relationship between Quantity demanded for a commodity and its various Determinants.
In economics, demand is a principle referring to a consumer’s desire for a specific good or service. Generally speaking, demand fluctuates as the price of the good or service changes. MMPC 10 Free Solved Assignment
The demand function sets out the variables, which are believed to have an influence on the demand for a particular product.
The demand for different products may be determined by a range of factors, which are not always the same for each of them.
The presentation in this section is of a generic demand function which includes some of the most common variables that affect demand. For any individual product, however, some of these may not apply.
Thus, any attempt by the firm to predict demand for a product on the basis of the demand function will require some initial knowledge, or at least informed guesswork, about the likely influences on it.MMPC 10 Solved Free Assignment 2022
The demand function can be written as: Qd = f (Po, Pc, Ps, Yd, T, A, CR, R, E, N, 0) The first three variables in the function relate to price.
They are the own price of the product (Po), the price of complements (Pc) and the price of substitutes (Ps) respectively.
In the case of the own price of a good, the expected relationship would be, the higher the price the lower the demand, and the lower the price the higher the demand.
This is the law of demand which is explained in greater detail in the next section.
In the case of complements, if the price of complementary goods increases, we would expect demand to fall both for it and for the good that itis complementary to.
This is the case as fewer people would now wish to buy either good given that the complementary good is now more expensive and this has the effect of reducing demand for the other good as well.MMPC 10 Solved Free Assignment 2022
In contrast, if the price of a substitute good rises, then demand for the good that it is a substitute for would be expected to rise as people switched to buying the latter rather than its more expensive substitute.
Complements and substitutes are also explained in detail later on.
The fourth variable is the demand function, Yd stands for disposable income, that is, the amount of money available to people to spend.
The greater the level of disposable income, the more people can afford to buy and hence the higher the level of demand for most products will be.
This assumes of course that they are ‘normal’ goods, purchases of which increase with rising levels of income, as opposed to ‘inferior’ goods that are purchased less frequently as income rises.MMPC 10 Solved Free Assignment 2022
The use of disposable income rather than just income is justified on the grounds that people do not have total control over their gross incomes.
There will, for example, be deductions to be made in the form of taxes.
Thus, the level of disposable income can change over time, for example changes in tax rates.
The effect of changes in disposable income on the demand for individual products will of course be determined by the ways in which it is spent.
This is where the fifth variable, tastes (T), needs to be taken into account. Over a period of time, tastes may change significantly, but this may incorporate a wide range of factors.
For example, in case of food, greater availability of alternatives may have a significant effect in changing the national diet.MMPC 10 Solved Free Assignment 2022
Thus, in India for instance, the demand for bajra has fallen over the past 10 years as people have switched to eating rice and wheat instead. Social pressures may also act to alter tastes and hence demand.
For example, tobacco companies have been forced to seek new markets as smoking has become less socially Demand Concepts and acceptable in the USA and Western Europe, thus reducing demand in these areas. Changes in technology may also have an impact.
For example, as the demand for smart televisions increased, the demand for normal televisions fell as tastes changed and the latter were deemed to be inferior goods.
Thus, there are a number of ways in which tastes may change over time.
The next set of variables, the A variable, relates to levels of advertising, representing the level of own product advertising, the advertising of substitutes and the advertising of complements respectively.MMPC 10 Solved Free Assignment 2022
The relationships here are as follows. In general, the higher the level of own advertising for a good, the higher demand for that good would be expected, other things being constant.
Likewise, the higher the level of advertising of a complementary good, the higher the demand for it and the good(s) which it is complementary to will be, given their symbiotic relationship.MMPC 10 Free Solved Assignment
Conversely, however, the higher the level of advertising of a substitute good, the lower the demand for the good for which it is an alternative and people buy more heavily promoted good.
The overall effect of advertising will depend on the extent to which each of these forms of advertising is used at any given point of time as they may, at least in part, cancel each other out.
This is something the firm will also need to know in order to determine its optimal advertising strategy.
The variables CR and R are also related. The former represents the availability of credit while the latter represents the rate of interest, that is the price of credit.
These variables will be most important for purchases of consumer durable goods, for example cars.MMPC 10 Solved Free Assignment 2022
Someone’s ability to buy a car will depend on his or her ability to raise money to pay for it.
This means that the easier credit is to obtain, the more likely they are to be able to make the purchase.
At the same time credit must be affordable, that is the rate of interest must be such that they have the money to pay.
These two variables have traditionally been regarded as exogenous to the firm that is, they cannot be ‘controlled by it.
In recent years, however, major car manufacturers have increasingly sought to bring them under their control through the provision of finance packages.
The letter E in the demand function stands for expectations. This may include expectations about price and income changes.
For example, if consumers expect the price of a good to rise in future then they may well bring forward their purchases of it in order to avoid paying the higher price.
This creates an increase in demand in the short term, but over the medium term, demand may fall in response to the higher price charged. The firm will need to adjust its production accordingly. MMPC 10 Solved Free Assignment 2022
An example of this might be when increased taxes are expected to be levied on particular goods, for example an increase in excise duties on alcohol or cigarettes, as is usually the case after the Central Budget.
Consumers of these products may buy more of them prior to the implementation of the duty increases in order to avoid paying the higher prices arising from the higher level of duties. Alternatively, expectations about incomes may be important.
For example, people who expect their incomes to rise may buy more goods, whereas those who expect their incomes to fall will buy less.
At the level of the individual consumer this may not be significant but when aggregated across a country’s population it can be.
Thus during a boom in the economy the additional expected purchasing power of consumers will lead to increases in demand for a significant number of products.
Conversely, the expectation that incomes will fall, perhaps as a result of redundancy during a recession, will reduce demand as consumers become more cautious. The variable N stands for the number of potential customers.
Each product is likely to have a target market, the size of which will vary. The number of potential customers may be a function of age or location.
For example, the number and type of toys sold in a particular country will be related to its demographic spread, in this case the number of children within it and their ages.
Finally, we come to o which represents any other miscellaneous factors which may influence the demand for a particular product.MMPC 10 Solved Free Assignment 2022
For example, it could be used to represent seasonal changes in demand for a particular product if demand is subject to such fluctuations rather than spread evenly throughout the year.
Examples of such products might include things such as umbrellas, ice creams and holidays.
In sum, this is a ‘catch all variable which can be used to represent anything else which the decision maker believes to have an effect on the demand for a particular product.
Thus each product will have its own particular demand function depending on which of the above variables influence the demand for it.
The ways in which the level of demand can be estimated on the basis of this demand function.MMPC 10 Solved Free Assignment 2022
We can also be used to estimate demand relationships. Consider a small restaurant chain specializing in Chinese dinners.
The business has collected information on prices and the average number of meals served per day for a random sample of eight restaurants in the chain.
These data are shown below. Use regression analysis to estimate the coefficients of the demand function. MMPC 10 Free Solved Assignment
These data are shown below. Use regression analysis to estimate the coefficients of the demand function Qa = a +bP.
Based on the estimated equation, calculate the point price elasticity of demand at mean values of the variables
| CITY | Meals Per Day(Q) | Price(P) |
| 1 | 100 | 150 |
| 2 | 90 | 180 |
| 3 | 85 | 190 |
| 4 | 110 | 140 |
| 5 | 120 | 130 |
| 6 | 90 | 190 |
| 7 | 105 | 160 |
| 8 | 100 | 140 |
Q2- (b) Differentiate between individual and market demand curve?
Ans-Demand, a chief economic principle, is the effective want for something and the willingness and ability to pay for it.
A relative concept, demand is always attached to a certain price point at a particular point in time.MMPC 10 Solved Free Assignment 2022
Quantitative demand analysis provides useful guidance to companies and investors trying to determine their market strategy and the growth potential of a product.
There are two basic types of demand: individual and market. While both principles overlap in many ways, the scope of individual demand is much narrower than market demand. MMPC 10 Free Solved Assignment
The market demand curve is the total of the quantities demanded by all individual consumers in an economy (or market area) at each price.
Economic theory supports the proposition that individual consumers will purchase more of a good at lower prices than at higher prices.
If this is true of individual consumers, then it is also true of all consumers combined.
This relationship is demonstrated by the example in Figure which shows two individual demand curves and the market demand that is estimated by adding the two curves together.
A market demand curve is the sum of the quantities that all consumers in a particular market would be willing and able to purchase at various prices.
If we plotted the quantity that all consumers in this market would buy at each price, we might have a market demand curve such
the market demand would be 4 for the first consumer and 2 for the second consumer, giving a total of 6 units as market demand. Analogously, at 10.00 the total market demand is 13 units.MMPC 10 Solved Free Assignment 2022
Another way of showing the derivation of the market demand curve is through equations representing individual consumer demand functions.
Consider the following three equations representing three consumers’ demand functions: MMPC 10 Free Solved Assignment
Consumer 1: P = 12 – Q1
Consumer 2: P= 10- 2Q2
Consumer 3: P = 10 – Q3
You should substitute some value of Q (such as Q = 4) in each of these Demand Concepts and equations to verify that they are consistent with the data in Table.
Now, add these three demand functions together to get an equation for the market demand curve. Be careful while doing this.
There is sometimes a temptation to just add equations without thinking about what is to be aggregated. In Table, it is easy to see that the quantities sold to each consumer at each price have been added.MMPC 10 Solved Free Assignment 2022
For example, at a price of Rs 6, consumer number 1 would buy six units (Q1 = 6), consumer number 2 would buy two units (Q2 = 2), and consumer number 3 would buy four units (Q3=4).
Thus, the total market demand at a price of 6 is 12 units (6 + 2 + 4 = 12). The important point to remember is that the quantities are to be added: not the prices.
To add the three given demand equations, we must first solve each for Q because we want to add the quantities (that is, we want to add the functions horizontally.
So we must solve them for the variable represented on the horizontal axis). Solving the individual demand functions for Q as a function of P (for consumers l. 2 and 3). We have
Q1=12-P
Q2=5-0.5P
Q3=10-P
Adding these equations results in the following
Q1+Q2+Q3=27-2.5P
And letting QM=Q1+Q2+Q3 Where QM Is market demand
Qm=27-2.5P
Qm is the total quantity demanded.
This is the algebraic expression for the market demand curve. We could solve this expression for P to get the inverse demand function:
P= 10.8 -0.4QM
| price | Q1 | Q2 | Q3 | QM |
| 10 | 2 | 0 | 0 | 2 |
| 8 | 4 | 1 | 2 | 7 |
| 6 | 6 | 2 | 4 | 12 |
| 4 | 8 | 3 | 6 | 17 |
| 2 | 10 | 4 | 8 | 22 |
The market demand curve shows that the quantity purchased goes up from 12 to 22 as the price falls from * 6.00 to 2.00.MMPC 10 Solved Free Assignment 2022
This is called a change in quantity demanded. As the price falls, a greater quantity is demanded. As the price goes up, a smaller quantity is demanded.
A change in quantity demanded is caused by a change in the price of the product for any given demand curve. MMPC 10 Free Solved Assignment
This is true of individual consumers’ demand as well as for the market demand. But what determines how much will be bought at each price?
Why are more televisions bought now than ten years ago, despite higher prices?
Why are more paperback books bought today than in previous years, even though the price has gone up? Questions such as these are answered by looking at the determinants of demand.
There are several factors that influence individual and market demand. Individual demand is influenced by an individual’s age, sex, income, habits, expectations and the prices of competing goods in the marketplace.MMPC 10 Solved Free Assignment 2022
Market demand is influenced by the same factors, but on a broader scale – the taste, habits and expectations of a community and so on.
It also considers the number of buyers in the market, the rate at which a certain community is growing and the level of innovation erupting in the marketplace.
Market demand can be measured on an international, national, regional, local, or even smaller level. MMPC 10 Free Solved Assignment
Q3 “An analytical tool frequently employed by managerial economists is the break even chart an important application of cost function.” Explain this statement?
Ans- Break-even analysis entails calculating and examining the margin of safety for an entity based on the revenues collected and associated costs.
In other words, the analysis shows how many sales it takes to pay for the cost of doing business.
Analyzing different price levels relating to various levels of demand, the break-even analysis determines what level of sales are necessary to cover the company’s total fixed costs.
A demand-side analysis would give a seller significant insight into selling capabilities.
“An analytical tool frequently employed by managerial economists is the break even chart an important application of cost function.” – Break-even analysis is useful in determining the level of production or a targeted desired sales mix.
The study is for a company’s management’s use only, as the metric and calculations are not used by external parties, such as investors, regulators, or financial institutions.
This type of analysis involves a calculation of the break-even point (BEP).
The break-even point is calculated by dividing the total fixed costs of production by the price per individual unit less the variable costs of production.
Fixed costs are costs that remain the same regardless of how many units are sold.
An analytical tool frequently employed by managerial economists is the breakeven chart, an important application of cost functions.
The breakeven chart illustrates at what level of output in the short run, the total revenue just covers total costs.MMPC 10 Solved Free Assignment 2022
Generally, a breakeven chart assumes that the firm’s average variable costs are constant in the relevant output range; hence, the firm’s total cost function is assumed to be a straight line.
Since variable cost is constant, the marginal cost is also constant and equals to average variable cost. Figure shows the breakeven chart of a firm.
Here, it is assumed that the price of the product will not be affected by the quantity of sales. Therefore, the total revenue is proportional to output.
Consequently, the total revenue curve is a straight line through the origin.
The firm’s fixed cost is RS500, variable cost per unit is RS4 and the unit sales price of output is RS 5.
The break even chart, which combines the total cost function and the total revenue curve, shows profit or loss resulting from each sales level.
For example, Figure shows that if the firm sells 200 units of output it will make a loss of 300.MMPC 10 Solved Free Assignment 2022
The chart also shows the breakeven point, the output level that must be reached if the firm is to avoid losses.It can be seen from the figure; the breakeven point is 500 units of output. Beyond 500 units of output the firm makes profit.
Breakeven charts are used extensively for managerial decision process. Under right conditions, breakeven charts can produce useful projections of the effect of the output rate on costs, revenue and profits.
For example, a firm may use breakeven chart to determine the effect of projected decline in sales or profits. MMPC 10 Solved Free Assignment 2022
On the other hand, the firm may use it to determine how many units of a particular product it must sell in order to breakeven or to make a particular level of profit.
However, breakeven charts must be used with caution, since the assumptions underlying them, sometimes, may not be appropriate.
If the product price is highly variable or if costs are difficult to predict, the estimated total cost function and revenue curves may be subject to these errors.
A break-even analysis is a financial tool which helps a company to determine the stage at which the company, or a new service or a product, will be profitable.
In other words, it is a financial calculation for determining the number of products or services a company should sell or provide to cover its costs (particularly fixed costs).
Break-even is a situation where an organisation is neither making money nor losing money, but all the costs have been covered.MMPC 10 Solved Free Assignment 2022
Break-even analysis is useful in studying the relation between the variable cost, fixed cost and revenue. Generally, a company with low fixed costs will have a low break-even point of sale.
Now we can say that “An analytical tool frequently employed by managerial economists is the break even chart an important application of cost function.
Q4-Oligopoly is the most prevalent form of market structure in the manufacturing sector. Explain with the help of an example?
Ans-Oligopoly- An oligopoly is a market structure with a small number of firms, none of which can keep the others from having significant influence.
The concentration ratio measures the market share of the largest firms.
A monopoly is a market with only one producer, a duopoly has two firms, and an oligopoly consists of two or more firms.
There is no precise upper limit to the number of firms in an oligopoly, but the number must be low enough that the actions of one firm significantly influence the others.
Oligopolies in history include steel manufacturers, oil companies, railroads, tire manufacturing, grocery store chains, and wireless carriers.
The economic and legal concern is that an oligopoly can block new entrants, slow innovation, and increase prices, all of which harm consumers.
Oligopoly as the form of market organization in which there are few sellers of a homogeneous or differentiated product.
If there are only two sellers, we have a duopoly. If the product is homogeneous, we have a pure oligopoly. If the product is differentiated, we have a differentiated oligopoly.
While entry into an oligopolistic industry is possible, it is not easy (as evidenced by the fact that there are only a few firms in the industry).
Oligopoly is the most prevalent form of market structure in the manufacturing sector-Oligopoly is the most prevalent form of market organization in the manufacturing sector of most nations,including India.MMPC 10 Solved Free Assignment 2022
Some oligopolistic industries in India are automobiles, primary aluminum, steel, electrical equipment, glass, breakfast cereals, cigarettes, and many others.
Some of these products (such as steel and aluminum) are homogeneous, while others (such as automobiles, cigarettes, breakfast cereals, and soaps and detergents) are differentiated. M
Oligopoly exists also when transportation costs limit the market area.
For example, even though there are many cement producers in India, competition is limited to the few local producers in a particular area.
Since there are only a few firms selling a homogeneous or differentiated production oligopolistic markets, the action of each firm affects the other firms in the industry and vice versa.MMPC 10 Solved Free Assignment 2022
For example, when automobile company GM introduced price rebates in the sale of its automobiles, automobile company Fand M immediately followed with price rebates of their own.
Furthermore, since price competition can lead to ruinous price wars, oligopolists usually prefer to compete on the basis of product differentiation, advertising, and service.
These are referred to as non price competition. Yet, even here, if GM mounts a major advertising campaign, F and M are likely to soon respond in kind.
When softdrink company P mounted a major advertising campaign in the early 1980s softdrink company Cresponded with a large advertising campaign of its own in the United States.
From what has been said, it is clear that the distinguishing characteristic of Oligopoly is the interdependence or rivalry among firms in the industry. This is the natural result of fewness.
Since an oligopolist knows that its own actions will have a significant impact on the other oligopolists in the industry, each oligopolist must consider the possible reaction of competitors in deciding its pricing policies,
the degree of product differentiation to introduce, the level of advertising to be undertaken, the amount of service to provide, etc.
Since competitors can react in many different ways (depending on the nature of the industry, the type of product, etc.)MMPC 10 Solved Free Assignment 2022
We do not have a single oligopoly model but many-each based on the particular behavioural response of competitors to the actions of the first.
Because of this interdependence, managerial decision making is much more complex under oligopoly than under other forms of market structure.
In what follows we present some of the most important oligopoly models. We must keep in mind, however, that each model is at best in complete.
The sources of oligopoly are generally the same as for monopoly.
That is, (1) economies of scale may operate over a sufficiently large range of outputs as to leave only a few firms supplying the entire market;
(2)huge capital investments and specialized inputs are usually required to enter an oligopolistic industry (say, automobiles, aluminum, steel, and similar industries), and this acts as an important natural barrier to entry;
(3) a few firms may own a patent for the exclusive right to produce a commodity or to use a particular production process;MMPC 10 Solved Free Assignment 2022
(4) established firms may have a loyal following of customers based on product quality and service that new firms would find very difficult to match;
(5) a few firms may own or control the entire supply of a raw material required in the production of the product; and MMPC 10 Free Solved Assignment
(6) the government may give a franchise to only a few firms to operate in the market.
The above are not only the sources of oligopoly but also represent the barriers to other firms entering the market in the long run.
If entry were not so restricted, the industry could not remain oligopolistic in the long run.
A further barrier to entry is provided by limit pricing, whereby, existing firms charge a price low enough to discourage entry into the industry.
By doing so, they voluntarily sacrifice short-run profits in order to maximize long-run profits.MMPC 10 Solved Free Assignment 2022
As discussed earlier oligopolies can be classified on the basis of type of product produced.
They can be homogeneous or differentiated. Steel, Aluminium etc. come under homogeneous oligopoly and television, automobiles etc.
come under heterogeneous oligopoly. The type of product produced may affect the strategic behaviour of oligopolists.
According to economists, two contrasting behaviour of oligopolists arise that is the cooperative oligopolists where an oligopolist follows the pattern followed by rival firms and the non-cooperative oligopolists where the firm does not follow the pattern followed by rival firms.
For example, a firm raises price of its product, the other firms may keep their prices low so as to attract the sales away from the firm, which has raised its price.
But as stated above, price is not the only factor of competition. As a matter of fact other factors on the basis of which the firms compete include advertising, product quality and other marketing strategies. MMPC 10 Free Solved Assignment
Therefore, we normally have four general oligopolistic market structures, two each under cooperative as well as non-cooperative structures.
We have firms producing homogeneous and differentiated products under each of the two basic structures. All these differences exist in the oligopolistic market.
This shows that each firm tries to make an impact in the existing market structure and have an effect on the rival firms. This tends to be a distinguishing characteristic of an oligopolistic market.MMPC 10 Solved Free Assignment 2022
Oligopoly is defined as a market structure with a small number of firms, none of which can keep the others from having significant influence.
Q5-Write short notes on the following:?
(a) Price Discrimination
Ans- Price discrimination is the practice of charging a different price for the same good or service.
There are three types of price discrimination-first-degree, second-degree, and third-degree price discrimination. Price discrimination is usually termed monopoly price discrimination.
This label is appropriate because price discrimination cannot happen in a perfectly competitive industry in equilibrium. Monopoly power must be present in a market for price discrimination to exist.MMPC 10 Solved Free Assignment 2022
This seems a trivial point, when you understand, the definition of price discrimination; the practice of charging different prices to various consumers for a given product.
In a competitive market, consumers would simply buy from the cheapest seller, and producers would sell to the highest bidders, and that would be that.
With monopoly power, however, the opportunity may exist for the firm to offer different terms of which price is only one component) to different purchasers, thus dividing the market-a practice known as market segmentation.
Price discrimination refers to the situation where a monopoly firm charges different prices for exactly the same product.
The monopoly firm (a single seller in the market) can discriminate between different buyers by charging them different prices because it has the power to control price by changing its output.
The buyers of its product have no choice but to buy from it as the product has no close substitutes.MMPC 10 Solved Free Assignment 2022
There are three types of price discrimination – First Degree price discrimination, Second Degree price discrimination, and Third Degree price discrimination.
First degree price discrimination refers to a situation where the monopolist charges a different price for different units of output according to the willingness to pay of the consumer. MMPC 10 Free Solved Assignment
For example, a doctor who is the only super specialist in the town may charge different fee for conducting surgery from different patients based on their ability to pay.
Second degree price discrimination refers to a situation where the monopolist charges different prices for different set of units of the same product.
For example, the electricity charges per unit of the first 100 kwh of power consumption may be different from the rate charged for the additional 100 kwhs.
Another example is railway passenger fares; the per kilometre fare is higher for the first few kilometers, which declines as the distance increases.
Thus the discrimination is based on volume of purchases.
When the monopolist firm divides the market (for its product) into two or more markets (groups of buyers or segments) and charges different price in each market, it is known as third degree price discrimination.
Airline tickets are a common example of this form of price discrimination.
For example, lower rates are applicable to senior citizens than business travelers, electricity rates applicable to residential users are lower than those appl establishments and soon.
Price discrimination is a selling strategy that charges customers different prices for the same product or service based on what the seller thinks they can get the customer to agree to.
In pure price discrimination, the seller charges each customer the maximum price they will pay.
In more common forms of price discrimination, the seller places customers in groups based on certain attributes and charges each group a different price.
(b) Bundling
ANS- Bundling is when companies package several of their products or services together as a single combined unit, often for a lower price than they would charge customers to buy each item separately.
We know that come across campaigns of the following kind. “Buy one, get the second at half-price”.MMPC 10 Solved Free Assignment 2022
A camera is sold in a box with a free tripod; a hotel room often comes with complimentary breakfast. These are examples of Bundling.
Bundling is the practice of selling two or more separate products together for a single price i.e. bundling takes place when goods or services which could be sold separately are sold as a package.
A codification of bundling practices and definitions of selling strategies is:
Pure bundling: products are sold only as bundles;
Mixed-bundling: products are sold both separately and as a bundle; and
Tying: The purchase of the main product (tying product) requires the purchase of another product (tied product) which is generally an additional complementary product.
This is not an exhaustive list but covers the most frequently encountered cases.
Pure bundling involves selling two products only as a package and not separately For example, Microsoft Office 365 is available as bundle of different applications such as word, excel, access, PowerPoint, outlook, OneNote etc.
You cannot buy these applications separately, you have to buy this in bundle only.
Microsoft has followed this practice because some applications are more in demand as compared to others.MMPC 10 Solved Free Assignment 2022
Mixed Bundling involves selling products separately as well as a bundle. An American fast food company’s are examples of Mixed Bundling.
The Times of India and The Economic Times can be purchased together for weekdays for a price much less than if purchased separately.
This is also an example of mixed bundling. In most cases mixed bundling provides price savings for consumers.
Bundling can be good for consumers. It can reduce “search costs” (the bundled goods are in the same place), as well as the producer’s distribution costs.
There are lower “transaction costs” (because a single purchase is cheaper to carry out than multiple ones).
And the producer may be a more efficient bundler than the customer: few of us choose, after all, to buy the individual parts of a computer to assemble them ourselves.
In perfectly competitive markets, bundling should happen in the products separately.
Where there is less than perfect competition-that is, most markets-economic models suggest that bundling sometimes benefits consumers and sometimes producers.
When firms have a measure of market power, they can engage in price discrimination, charging different prices to different customers.
Bundling can play a part in price discrimination, as different bundles of goods and prices may appeal to different customers.MMPC 10 Solved Free Assignment 2022
In a celebrated case that caught much media attention, Microsoft was accused of anticompetitive conduct in ‘bundling Internet Explorer and Windows as a pure bundle.
Microsoft claimed they are not a bundle at all, rather a single product incapable of being broken into parts. It is of course difficult to settle such arguments.
But the interesting aspect is that the company does not consider its product (Windows and Internet Explorer) as being capable of being broken into parts.
Many companies produce and supply multiple products or services. They must decide whether to sell these products or services separately at individual prices or in packages of products, or bundles, at a “bundle price.”
(c) Time-series analysis
ANS- Regression analysis, as described above, can be used to quantify relationships between variables. MMPC 10 Free Solved Assignment
However, data collection can be a problem if the regression model includes a large number of independent variables.MMPC 10 Solved Free Assignment 2022
When changes in a variable show discernable patterns over time, time-series analysis is an alternative method for forecasting future values.
The focus of time-series analysis is to identify the components of change in the data.
Traditionally, these components are divided into four categories:
- Trend 2. Seasonality 3. Cyclical patterns 4. Random fluctuations
A trend is a long-term increase or decrease in the variable. For example, the time series of population in India exhibits an upward trend, while the trend for endangered species, such as the tiger, is downward.
The seasonal component represents changes that occur at regular intervals. A large increase in sales of umbrellas during the monsoon would be an example of seasonality.
Analysis of a time series may suggest that there are cyclical patterns, defined as sustained periods of high values followed by low values.
Business cycles fit this category. Finally, the remaining variation in a variable that does not follow any discernable pattern is due to random fluctuations.
Various methods can be used to determine trends, seasonality, and any cyclical patterns in time-series data. However, by definition, changes in the variable due to random factors are not predictable.MMPC 10 Solved Free Assignment 2022
The larger the random component of a time series, the less accurate the forecasts based on those data. Time series analysis is a specific way of analyzing a sequence of data points collected over an interval of time.
In time series analysis, analysts record data points at consistent intervals over a set period of time rather than just recording the data points intermittently or randomly.
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