LBS IMT Covid19

Name ABHISHEK SACHAN_IMT COVID 19
Question 1
Answer 1A: Collusion is the term for the phenomenon that results from OPEC
members' collaborative decision-making procedures by banding together and
creating a cartel to control oil production and prices. This is typical of
oligopoly.
Collaborative decision-making of this kind is a phenomenon that may be

referred to as collusion.
Benefits of making decisions like this:
• Price wars and increasing consumer surplus could result from competitive
oligopoly. For example, one of OPEC's main advantages is its control over oil
prices, which have a huge impact on all worldwide economies and products.
• Market leaders may be able to realize economies of scale, which would

eventually translate into cheaper product costs.
• Steady supply: Depending on the state of the market, a steady supply of oil
may be another benefit. For example, in the event that WTI crude oil prices
dropped, customers who had committed to make future purchases were forced
to accept deliveries even though they lacked the infrastructure necessary to
store large amounts of oil.
• Lead to more funding for research and development.
Cons of making such decisions include:
• Less options for consumers because supply and demand are set by
cooperation rather than by ordinary market participants.
• Behaving like a cartel reduces competition and may raise costs.
• It's possible to fabricate deliberate barriers to entry.
• The possibility of a loss of financial security exists.

Answer 1B: According to the paper COVID-19 THE GLOBAL
SHUTDOWN, the world experienced a demand shock shortly after the supply
shock, which in turn decreased the need for natural resources and caused oil
prices to drop to their lowest point since 2003. Then, by May, the benchmark
for oil prices dropped to negative levels, suggesting that consumers would be
willing to pay to dispose of excess oil. As a result, OPEC resolved to reduce
output to 9.7 million barrels per day.
The decision may have a variety of intended results. First, to acknowledge the
collapse of the oil market as a result of an abundance of oil on the market and
further price cuts. Second, lowering production results in a decrease in supply,
and after the excess is used up, demand rises and prices rise accordingly.
Thirdly, lowering production will also lower their marginal cost, and lowering
supply will also prevent further price declines.
Before OPEC made the decision to reduce production, the oil industry was not
in a particularly favorable position. Prices were as low as they had been since
2003, and demand was declining. As a result, the supply curve moved slightly
to the right, and the equilibrium price point changed and formed at a lower
point. However, the demand curve was shifting leftward because the OPEC
countries were unable to come to an agreement with other oil-producing
nations, so they continued to produce.
But if OPEC decides to reduce output, picture the scenario in which there is
less supply than there is demand for the excess oil, which causes the demand
curve to shift left and right in an attempt to increase OPEC's share of the
market and drive-up prices.
Answer 1C: An oligopoly is a market condition in which there are a small

number of suppliers, producers, and distributors of a certain good, providing
them the advantage to set the product's price and supply in a way that protects
their interests. The Organization of the Petroleum Exporting Countries
(OPEC), where a small group of nations (13 countries) control oil supply and
prices for the world economy, is a prime example of an oligopoly.
Question 2
Answer 2A:
1. Before COVID-19, the company was operating at a profit-maximizing

level, with eight journalists producing 92 articles a month. A firm operates at
the maximum profit level when marginal revenue and marginal cost are in
equilibrium or MR = MC.
2: The total profit of the company was €2,500, which was obtained by
subtracting total costs from total revenue. Production at the profit-maximizing
level.
3: Conceptually, it follows that for a firm to operate at a profit-maximizing

level of production, marginal cost and revenue must be the same. Calculations
show that monthly utilities and office costs constitute a fixed cost. The salary
of one supplier multiplied by the total number of suppliers employed in the
company is a variable cost. We arrived at the total monthly cost of variable
and fixed costs.
We can determine the average total cost with the given data by dividing the
total cost by the number of articles per month (quantity). The additional cost
of production per product unit can be determined by the following formula:
Marginal cost = (CHANGE IN TOTAL COST) / (CHANGE IN QUANTITY)

based on the average total cost. By multiplying the revenue per article by the
total number of articles, we can determine the total revenue (TR). Marginal
revenue is the extra money received from producing one more unit of product.
This can be calculated based on the total revenue and the number of articles
produced.
The formula is Marginal Revenue = (Change in revenue) / (Change in

quantity).
Answer 2B:
1: Before closing, there were eight journalists. To maximize profits, we must

lay off four journalists when the lockout takes effect. Product-based revenue
fell from €375 to €250.
2: €1500 is the adjusted total profit, i.e. 13500 minus 12000.
3. The reporter was let go because the agency was unable to operate at a
profit-maximizing level and overall profits were declining. As a result, the
news site had to lay off four editors to maximize profits. If not, total revenue
is less than total cost. So, MR (marginal revenue) = MC (marginal cost) if 4
suppliers are retained. of.
Question 3
Answer 3A: People who experience job loss as a result of a decline in overall
demand are said to be experiencing cyclical unemployment.
Layoffs result from a decline in consumer demand for goods and services,
which has a negative impact on production and reduces the need for labor.
This implies that consumers would have less money to spend, which would
result in even greater revenue loss and force businesses to reduce employee
counts in order to keep profit margins high.
Demand deficient, universal, or Keynesian unemployment are terms used to

describe long-term unemployment accompanied by a sustained drop in
aggregate demand.
The 2008 financial crisis and the tech catastrophe of the 2000s may have
contributed to cyclical unemployment, which could have caused the stock
market crash.
Answer 3B: Because of the uncertainty about the future, consumers are
intending to save money and spend only on necessities like groceries,
medications, healthcare, and entertainment. As a result, they are cutting back
on other expenses like travel, luxury goods, and entertainment. This is why
the recession is demand-led.
Answer 3C: Because consumers are less likely to increase their spending,
there would be a decline in aggregate demand, which would also induce a
decline in aggregate supply. According to Keynes' Law, increases in
aggregate demand result in correspondingly little changes in the aggregate
supply.
Answer 3D: The AD/AS curve will shift to the left as a result of decreased
supply and demand.
Question 4
Answer 4A: Monetary policy: To boost the amount of cash in the market, the
RBI should maintain a low interest rate. leading to a rise in corporate
investment and the circular flow of money.
Fiscal policy: Reducing taxes and raising government expenditure are two
aspects of an expansionary fiscal policy during a recession. With the Income
Tax Ordinance 2020, the Indian government lowered the corporate income tax
rates; nevertheless, no additional rate reduction has taken place.
In addition, it is necessary to lower the individual tax rate in order to
encourage individuals to spend more, which will boost the amount of money
flowing into the economy.
Answer 4B: To improve the flow of money into the economy, the RBI should
lower interest rates. For example, it should lower the repo rate. It might also
minimize the CRR rate. Additionally, the RBI might buy government bonds
to add to the available liquidity.

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Name ABHISHEK SACHAN_IMT COVID 19

Collaborative decision-making of this kind is a phenomenon that may be

Benefits of making decisions like this:

• Market leaders may be able to realize economies of scale, which would

• Lead to more funding for research and development.

Cons of making such decisions include:

• Behaving like a cartel reduces competition and may raise costs.

• It's possible to fabricate deliberate barriers to entry.

• The possibility of a loss of financial security exists.

Answer 1C: An oligopoly is a market condition in which there are a small

1. Before COVID-19, the company was operating at a profit-maximizing

3: Conceptually, it follows that for a firm to operate at a profit-maximizing

Marginal cost = (CHANGE IN TOTAL COST) / (CHANGE IN QUANTITY)

The formula is Marginal Revenue = (Change in revenue) / (Change in

1: Before closing, there were eight journalists. To maximize profits, we must

2: €1500 is the adjusted total profit, i.e. 13500 minus 12000.

Demand deficient, universal, or Keynesian unemployment are terms used to

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