QP CODE: 22008036 Reg No : ..................... Name : .....................

B.COM DEGREE (CBCS) PRIVATE EXAMINATION, JULY 2022

Second Semester

B.COM

COMPLEMENTARY - CO2CMT02 - PRINCIPLES OF BUSINESS DECISIONS 2017-2019

ADMISSIONS

5D1309E8

Section A
1.According to Prof. Evan J Douglas, Managerial economics is concerned with the
application of economic principles and methodologies to the decision making
process within the firm or organisation under the conditions of uncertainty.

Spencer and Siegelman define it as The integration of economic theory with

business practices for the purpose of facilitating decision making and forward
planning by management.

2. own price of the commodity, price of related goods, income of the consumer,
tastes and preferences of the consumer, miscellaneous

3.an economic theory that the percentage change of the price of a good and the
percentage change of the demand of the good is the same.

4.Income elasticity of demand describes the sensitivity to changes in consumer

income relative to the amount of a good that consumers demand. Or the income
elasticity of demand is the responsivenesses of the quantity demanded for a good to
a change in consumer income.

5. Demand forecasting is the process of making estimations about future customer

demand over a defined period, using historical data and other information.Demand
forecasting is a technique that is used for the estimation of what can be the demand
for the upcoming product or services in the future. It is based upon the real-time
analysis of demand which was there in the past for that particular product or service
in the market present today. Demand forecasting must be done by a scientific
approach and facts, events which are related to the forecasting must be considered.

6.The factors of production are resources needed to create a product in

manufacturing or production industries.Factors of production often include land,
labor, capital goods and entrepreneurship.

7. constant returns to scale is when a firm changes their inputs (resources) with the
results being exactly the same change in the output

8. Diseconomies of scale happen when a company or business grows so large that

the costs per unit increase. It takes place when economies of scale no longer
function for a firm.

9. Fixed costs are any expenses that remain the same no matter how much a
company produces.Or Fixed cost is referred to as the cost that does not register a
change with an increase or decrease in the quantity of goods produced by a firm.

10. A discriminating monopoly is a market-dominating company that charges

different prices—typically, with little relation to the cost to provide the product or
service—to different consumers.

11. oligopsony state of the market in which only a small number of buyers exists for
a product.eg; McDonald's, Burger King

12.Cost-oriented or cost-based pricing method is the purest form of pricing method.

In this pricing method, a certain percentage of the desired profit is added to the cost
of the product to obtain the final price of the product. The cost of the product is the
total cost spent on the production of the product.

Section B
13. steps involved in decision making process are: 1. Define the problem, 2.
Analysing the problem, 3. Developing alternative solutions, 4. Selecting the best type
of alternative, 5. Implementation of the decision, 6. Follow up, 7. Monitoring and
feedback

14. Movement in demand curve, occurs along the curve, whereas, the shift in demand
curve changes its position due to the change in the original demand relationship.
Movement along a demand curve takes place when the changes in quantity
demanded are associated with the changes in the price of the commodity.Changes in
factors like average income and preferences can cause an entire demand curve to
shift right or left. This causes a higher or lower quantity to be demanded at a given
price.

15. Advertising elasticity is a measure of an advertising campaign's effectiveness in

generating new sales. It is calculated by dividing the percentage change in the
quantity demanded by the percentage change in advertising expenditures.

16. returns to scale refers to the proportion between the increase in total input and
the resulting increase in output. There are three kinds of returns to scale: constant
returns to scale (CRS), increasing returns to scale (IRS), and decreasing returns to
scale (DRS).

A constant return to scale is when an increase in input results in a proportional

increase in output. Increasing returns to scale is when the output increases in a
greater proportion than the increase in input. Decreasing returns to scale is when all
production variables are increased by a certain percentage resulting in a
less-than-proportional increase in output.

The key difference between the law of diminishing returns and decreasing returns to
scale is that the former is in the short run, where at least one factor of production is
fixed, whilst the latter is in the long run, where all factors of production/ inputs can be
varied.

17. marginal cost: The increase in cost that accompanies a unit increase in output;
the partial derivative of the cost function with respect to output. Additional cost
associated with producing one more unit of output.

average cost: average cost or unit cost is equal to total cost divided by the number
of goods produced. It is also equal to the sum of average variable costs and average
fixed costs. Average cost can be influenced by the time period for production
(increasing production may be expensive or impossible in the short run)

Marginal cost includes all of the costs that vary with the level of production. For
example, if a company needs to build a new factory in order to produce more goods,
the cost of building the factory is a marginal cost. The amount of marginal cost
varies according to the volume of the good being produced.

18. Five main objectives of pricing are: (i) Achieving a Target Return on Investments

(ii) Price Stability

(iii) Achieving Market Share

(iv) Prevention of Competition and

(v) Increased Profits

19. The basic difference between Perfect Competition and Monopoly is that perfect
competition involves a large number of sellers with a large number of buyers
whereas a monopoly market has one single seller for a large number of buyers

Perfect Competition:-

It refers to the market in which there are many firms selling a certain homogenous
product.In other words, in this type of market, there are many buyers and sellers of a
homogenous product. A single firm or seller cant decide the price of the product.
Consequently, the market forces like demand and supply determine the price level.
Also, the individual firms or sellers are price takers in this market as they have no
control over the price.Meaning of Monopoly:-

A monopoly market is a market structure in which a single firm is a sole producer of

a product for which there are no close substitutes available in the market. Since there
is only one seller in the market, it eliminates the rivals and direct competitors.
Therefore, the monopolist has full control over its price. Hence, the seller in this
market is not known as a price maker. The seller, by itself, determines the price and
the quantity to be sold by him in the market.

20.Price discrimination refers to a pricing strategy that charges consumers different

prices for identical goods or services.There are three types of price discrimination:
first-degree or perfect price discrimination, second-degree, and
third-degree.first-degree price discrimination involves charging consumers the
maximum price that they are willing to pay for a good or service.Second-degree price
discrimination involves charging consumers a different price for the amount or
quantity consumed. hird-degree price discrimination involves charging different
prices depending on a particular market segment or consumer group. It is commonly
seen in the entertainment industry.

21.Product differentiation is what makes your product or service stand out to your
target audience. It's how you distinguish what you sell from what your competitors
do, and it increases brand loyalty, sales, and growth. Focusing on your customers is a
good start to successful product differentiation.Several different factors can
differentiate a product. However, there are three main categories of product
differentiation. These include horizontal differentiation, vertical differentiation, and
mixed differentiation.

Vertical differentiation is when customers choose a product by ranking their options

from best to the worst using an objective measurement, like price or quality.

Horizontal differentiation is when customers choose between products subjectively,

because they have no objective measurement to distinguish between best or worst.

Section c
22.Fundamental Principles of Managerial Economics- Incremental Principle, Marginal
Principle, Opportunity Cost Principle, Discounting Principle, Concept of Time
Perspective Principle, Equi-Marginal Principle.

23.Substitute Approach.

Evolutionary Approach.

Buyers or consumers view.

Vicarious approach (or Experts' opinion)

Sales experience approach (or Market test method)

24.The optimum combination of inputs that is required to produce output at the least
possible cost is called the least cost combination.

25. A product life cycle encompasses the time it takes to develop and introduce the
product to the market until its no longer produced and sold to consumers. Primarily,
it is divided into 4 stages — the introduction stage, growth stage, maturity stage,
and decline stage.Knowing where a product is on the life cycle stage can help
businesses make better pricing decisions, predict profitability, manage sales and
compete effectively against rivals. Moreover, better pricing decisions and strategies
help entice buyers to choose a product or brand over all others in the market time
and time again.