Description
Business Economics
September 2024 Examination
Q1. With the help of the concept of production function. Briefly explain the Law of Variable Proportions and Law of Returns to Scale. Elaborate your answer by citing real world examples. (10 Marks)
Ans 1.
Introduction
In the realm of business economics, understanding the dynamics of production is pivotal for predicting and managing the output of any enterprise. Two fundamental principles that guide economists and business managers alike in this endeavor are the Law of Variable Proportions and the Law of Returns to Scale. These laws delve into the responses of output when inputs in the production process are varied. The Law of Variable Proportions examines short-term production levels when one input is altered while other inputs remain constant. In contrast, the Law of Returns to Scale scrutinizes the long-term output reactions to changes in all production inputs proportionately. Real-world applications of these laws are abundant, ranging from manufacturing industries to agricultural sectors, where they help in optimizing
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Q2. Countries are making every effort to cut back on their usage of petroleum products, particularly gasoline, in light of the rising cost of crude oil. Results from this will only become apparent over time. To cut down on the usage of private automobiles, the majority of nations are working to increase public transportation systems’ popularity. For the reasonably developed countries, the income elasticity of spending on private vehicles has been calculated to be approximately 2.5. Some nations, like India, are highly irritated that despite fare reductions, there is no movement towards public transportation. The following describes the user profile of the public transportation system:
They belong to the middle and low income categories with income elasticity less than one and the absolute value of price elasticity also less than one
With the above given statement, you are required to suggest your point logically as to why the public transport is not becoming popular and why the use of private vehicles is only continuing to increase. You can build your answer by keeping income elasticity in mind and analysing it. (10 Marks)
Ans 2.
Introduction
In recent years, the global economy has experienced significant volatility in the price of crude oil, prompting countries to reconsider their dependence on petroleum products, especially gasoline. This shift is driven by the urgent need to address environmental concerns and manage economic impacts. A key strategy adopted by various nations involves promoting public transportation as an alternative to private vehicle use. However, despite these efforts, many countries, including India, are witnessing a stagnant or even declining trend in public transportation usage. This issue is particularly complex in reasonably developed countries where the income elasticity of demand for private vehicles is high. This paper aims to explore
Q3a. A corporation in the USA that works in the telecommunications industry is called SNDL. Their intention is to join the Indian telecom industry. Prior to entering the Indian market, they would like to examine the market structure. They are doing this in order to determine how much price power they may have in the Indian telecom market. If you were giving them advice on the same thing, how would you go about comprehending the structure of the market? Explain which test or technique you would choose for determining the market concentration. (5 Marks)
Ans 3a.
Introduction
SNDL, a U.S.-based telecommunications company, is considering expanding into the Indian telecom market. A critical aspect of their strategic planning involves understanding the market structure to gauge potential price power and competitive dynamics. Assessing market concentration is pivotal as it informs the company about the level of competition and potential barriers they might face. This analysis would involve the use of specific economic
Q3b. ABC Ltd sought to determine the nature of the relationship between goods A and B, specifically if they are complementary or substitutes. Regarding the price and quantity requested for commodities A and B, the following information was available. The price of A remained unchanged, but the price of B dropped from Rs 240 to Rs 200, which increased the demand for A from 3500 to 4000 units. Determine the cross-elasticity of demand between goods A and B, and then provide a commentary on the relationship between the two goods based on the results. (5 Marks)
Ans 3b.
Introduction
ABC Ltd aims to understand the relationship between two of its products, Goods A and B, by examining their cross-elasticity of demand. This economic measure helps determine whether two goods are complements or substitutes based on how a change in the price of one affects the demand for the other. The provided data indicates that a price reduction in Good B led to an increase in the demand for Good A, suggesting an interdependent relationship. This
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