IIBM – Managerial Economics Answer sheet

 

IIBM – Managerial Economics Answer

1. Demand is determined by
2. a) Price of the product
3. b) Relative prices of other goods
4. c) Tastes and habits
5. d) All of the above

1. When a firm’s average revenue is equal to its average cost
2. , it gets (1)
3. a) Super profit
4. b) Normal profit
5. c) Subnormal profit
6. d) None of the above

III. Managerial economics generally refers to the integration of economic theory with business

1. a) Ethics
2. b) Management
3. c) Practice
4. d) All of the above

1. Which of the following was not the immediate cause of the 1991 economic crisis (1)
2. a) Rapid growth of population
3. b) Severe inflation
4. c) Expanding Fiscal deficit
5. d) Rising current account deficit

1. Money functions refer to :
2. a) Store of value
3. b) Medium of Exchange
4. c) Standard of deferred payments
5. d) All of the above

1. Given the price, if the cost of production increases because of the higher price of raw materials, the supply
2. a) Decreases
3. b) Increases
4. c) Remains the same
5. d) Any of the above

VII. Total Utility is maximum when (1)

1. Marginal Utility is maximum
2. Marginal Utility is Zero
3. Both of the above
4. None Of The Above

VIII. The Cardinal approach is related to (1)

1. Equimarginal Curve
2. Law of diminishing returns
3. Indifference Curve
4. All of the above

1. The marginal Utility curve of a consumer is also his (1)
2. a) Supply Curve
3. b) Demand Curve
4. c) Both of the above
5. d) None of the above

1. Government of India has replaced FERA by (1)
2. a) The Competition Act
3. b) FRBMA
4. c) MRTP Act
5. d) FEMA

Part Two:

1. What is Managerial Economics? What is its relevance to Engineers/Managers? (5)
2. “Managerial Economics is economics that is applied in decision making” Explain.
3. Differentiate b/w, Microeconomics vs. macroeconomics? (5)
4. Factors Affecting Price Elasticity of Demand? (5)

Case Let 1

Dabur is among the top five FMCG companies in India and is positioned successfully on the specialist herbal platform. Dabur has proven its expertise in the fields of health care, personal care, home care, and food. The company was founded by Dr. S. K. Burman in 1884 as a small pharmacy in Calcutta (now Kolkata), India. And is now led by his great-grandson Vivek C. Burman, who is the Chairman of Dabur India Limited and the senior most representative of the Burman family in the company. The company headquarters is in Ghaziabad, India, near the Indian capital New Delhi, where it is registered. The company has over 12 manufacturing units in India and abroad. The international facilities are located in Nepal, Dubai, Bangladesh, Egypt and Nigeria. S.K. Burman, the founder of Dabur, was trained as a physician. His mission was to provide effective and affordable cures for ordinary people in far-flung villages. Soon, he started preparing natural remedies based on Ayurveda for diseases such as Cholera, Plague, and Malaria. Due to his cheap and effective remedies, he became to be known as ‘Daktar’ (the Indian version of ‘doctor’). And that is how his venture Dabur got its name—derived from Daktar Burman. The company faces stiff competition from many multinational and domestic companies. In the Branded and Packaged Food and Beverages segment major active companies include Hindustan Lever, Nestle, Cadbury and Dabur. In case of Ayurvedic medicines and products, the major competitors are Baidyanath, Vicco, Jhandu, Himani and other pharmaceutical companies. The vision statement of Dabur says that the company is “dedicated to the health and well-being of every household”. The objective is to “significantly accelerate profitable growth by providing comfort to others”. To achieve this objective Dabur aims to:

 Focus on growing core brands across categories, reaching out to new geographies, within and outside India, and improving operational efficiencies by leveraging technology.

 Be the preferred company to meet the health and personal grooming needs of target consumers with safe, efficacious, natural solutions by synthesizing deep knowledge of Ayurveda and herbs with modern science.

 Be a professionally managed employer of choice, attracting, developing, and retaining quality personnel.

 Be a responsible citizen with a commitment to environmental protection.

 Provide superior returns, relative to our peer group, to our shareholders.

Chairman of the company Vivek C. Burman joined Dabur in 1954 after completing his graduation in Business Administration from the USA. In 1986 he was appointed as the Managing Director of Dabur and in 1998 he took over as Chairman of the Company. Under Vivek Burman’s leadership, Dabur has grown and evolved as a multi-crore business house with a diverse product portfolio and a marketing network that traverses the whole of India and more than 50 countries across the world. As a strong and positive leader, Vivek C. Burman motivated employees of Dabur to “do better than their best”—a credo that gives Dabur its status as India’s most trusted nature-based products company. Leading brands More than 300 diverse products in the FMCG, Healthcare, and Ayurveda segments are in the product line of Dabur. The list of products of the company includes very successful brands like Vatika, Anmol, Hajmola, Dabur Amla Chyawanprash, Dabur Honey, and Lal Dant Manjan with a turnover of Rs.100 crores each. Strategic positioning of Dabur Honey as a food product, lead to market leadership with over 40% market share in the branded honey market; Dabur Chyawanprash is the largest-selling Ayurvedic medicine with over 65% market share. Dabur is a leader in herbal digestives with a 90% market share. Hajmola tablets are in command with a 75% market share of the digestive tablets category. Dabur Lal Tail tops the baby massage oil market with 35% of the total share. CHD (Consumer Health Division), dealing with classical Ayurvedic medicines, has more than 250 products sold through prescription as well as over the counter. Proprietary Ayurvedic medicines developed by Dabur include Nature Care Isabgol, Madhuvaani, and Trifgol. However, some of the subsidiary units of Dabur have proved to be low-margin businesses; like Dabur Finance Limited. The international units are also operating on low-profit margins. The company also produces several “me–too” products. At the same time, the company is very popular in the rural segment.

Questions

1. What is the objective of Dabur? Is it profit maximization or growth maximization? (10)
2. Do you think the growth of Dabur from a small pharmacy to a large multinational company is an indicator of the advantages of the joint stock company against the proprietorship form? Elaborate.

Caselet 2

The Regina Company„ one of the largest intakes of vacuum cleaners recent\’) had svc CFC toolkits with the quality of its products. The market response to this 1ak of quality caused financial problems for Ow company. in late 1995. Regina began having return rates as high as 30 to 50 percent on some of its Housekeeper and Housekeeper Plus models. These models were sold primarily through discount stores. Further, Regina\’s Spectrum vacuum cleaner, an upgraded version sold in specialty stores, was introduced in 1995 with many quality problems. If the specific problems identified for the Housekeeper and Housekeeper Plus models were associated with faulty belts and weak suction. In the Spectrum model, the agitator was melting; and making a loud noise, the foot pedals were breaking, and the steel-encased motor (which had been advertised as the power source for the vacuum cleaner) had been replaced with a less desirable. less reliable motor. As a result of these problems, Target stores discontinued Regina\’s Housekeeper Plus model after reporting that \”at least half of those sold were returned.\” At Starmart, which accounts for about a quarter of the Housekeeper sales, I. out of every 5 machines sold was returned. To help service customer complaints, Regina set up an 800 telephone number for customers to contact the firm. Directly. The sales returns caused Regina\’s shareholders to question the 1995 fiscal earnings report.

Furthermore, both inventories and accounts receivable doubled during the 1995 fiscal year. At the end of that period, Regina\’s chairman and 40 percent stockholders Resigned. The chairman’s resignation was closely followed by a company announcement stating that the financial results reported for the 1995 fiscal year were materially incorrect and had been withdrawn. This announcement brought a suit from shareholders who had bought Reoina stock based on the 1995 Camings report. It also prompted an audit of the 1995 results and a request to another accounting organization to work on Regina\’s business and accounting controls. A few months later, Regina \’agreed to be acquired by a unit of Magnum, a vacuum cleaner and Water- purification Company. Under Magnum, Regina shut down production while engineers worked to solve the problems inherent in the Housekeeper and Housekeeper Plus vacuums, particularly the suction difficulties. In September 1998, Magnum and Regina decided to separate the two companies again. Since then, Regina has been regaining market share with its Housekeeper models. The \’vacuums are popular because they carry onboard tools.

Questions:

1. What type of controls would you have established to preclude the major returns experienced by Regina?
2. How would you have controlled the finished goods -inventory to avoid it is growing to twice the size that it was in the previous year?

Section C: Applied Theory

1. What is the importance of demand analysis in business decisions? (15)
2. Explain individual demand function and market demand function. (15)

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