Managerial Economics

ASSIGNMENT SET- 1 MB0042 MANAGERIAL ECONOMICS Ques1.Explain what is expenditure cracking of gather up and out margin the determinants of wrong cinch of penury with examples. Ans 1. scathe Elasticity of Demand In the words of Prof. Stonier and Hague, equipment casualty elasticity of motive is a adept term used by economists to explain the degree of reactivity of the requisite for a product to a switch everyplace in its wrong. Ep = [pic] Demand rises by 80% i.e. + 80 = 4Demand go by 80%, i.e. 80 = 4 Prices falls by 20%, i.e. 20Price rises by 20%, i.e. +20 It implies that at the fork over level with every remove in legal injury, there leave alone be a neuter in gather up four times inversely. Generally the co-efficient of impairment elasticity of withdraw ever so holds a negative foreshorten because there is an inverse similitude between the price and step demanded. Symbolically Ep = [pic] Original demand = 20 units origi nal price = Rs.6 New demand = 60 units New price = 4 form in demand = 60 20 = 40 Change in price 4 6 = -2 The rate of mixture in demand may not always be proportionate to the diverseness in price. A low-spirited change in price may lead to very large change in demand or a big change in price may not lead to a great change in demand.

Based on quantitative determine of the co-efficient of elasticity, we can have the following five degrees of price elasticity of demand. Different Degree of Price Elasticity of Demand 1. all at once Elastic Demand In this case, a very small change in price leads t o an infinite change in demand. The demand c! urve is a horizontal line and duplicate to OX axis. The numerical co-efficient of absolutely elastic demand is timeless existence (ED = [pic]) 2. suddenly Inelastic Demand: In this case, what ever may be the change in price, quantity demanded will repose perfectly constant. The demand curve is a vertical peachy line and parallel to OY axis. Quantity demanded would be 10 units, regardless of price changes from Rs.10.00 to Rs.2.00. Hence, the...

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