A unit of Realwaves (P) Ltd

MBA CLASSES
ST
I Semester
Managerial
Economics
Dear Student,
Welcome to the World of Knowledge – REAL WAVES

I have the pleasure of presenting this study material to

you. It contains exhaustive practical and Theory. It covers all
the aspects which will bring in to focus all important concepts
that you need to study in order to fortify yourself for your
examination. The subject will be taught by eminent professor
who are highly experienced and well versed with the job.
The Institute is very exhaustive and wholly concept based.
Also, the Institute is very systematic, well planned and
absolutely time- bound. For a change, say good bye to
mechanical learning. I am sure you will feel that the study is a
pleasurable job and not a painful exercise.

I wish you a very happy study time.

BEST OF LUCK!

PUNEET MORE
Director
Unit – I
Concepts and Techniques – Nature and Scope of Managerial Economics,
Application of Economics in Managerial Decision Making – Marginal
Analysis; Theory of Demand – Demand Functions, Income and
Substitution Effects, Demand Forecasting.

Unit – II
Production and Cost – Returns to Scale, Cost Curves, Break-Even
Analysis; Economies of Scale, Theory of Firm – Profit Maximisation, Sales
Maximization.

Unit – III
Market Structure – Price and Output Decision Under Different Market
Structures, Price Discrimination, Non-Price Competition.

Unit – IV
Macro Economics–Aggregates and Concepts, GNP and GDP, Concept and
Measurement of National Income: Determination of National Income,

Unit –V
Money Supply and Monetary Policy, Fiscal Policy – Aggregate
Consumption – Gross Domestic Capital Formation – WPI, CPI and
Inflation. Consumption Function.
SR NAME OF CHAPTER PAGE
NO. NO.

1 Unit-I
Chapter 1: Introduction of Managerial Economics 1
Chapter 2: Principles of Managerial 11
Chapter 3: Theory of Demand 22

2 Unit-II
Chapter 4: Production Analysis 37
Chapter 5: Cost Analysis 51
Chapter 6: Theory of Firm
Chapter 7: Break even Analysis 65

3 Unit-III
Chapter 8: Market Structure 80

4 Unit-IV
Chapter 9: Introduction to Macro economics
Chapter 10: National Income 110

5 Unit- V
Chapter 11: Money, Monetary and Fiscal Policy
Chapter 12: Aggregate Consumption and Savings
Exam paper 133
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 65

A unit of Realwaves (P) Ltd Profit

MODULE 8 PROFIT
Meaning

Meaning and Definition of Marginal Costing

Marginal cost is the cost of one unit of product which would be avoided if that unit were not produced.
An important point is that marginal cost per unit remains unchanged irrespective of the level of
activity.
The increase in one unit of output, the total cost is increased and this increase in total cost from the
existing to the new level is known as Variable Cost.

The Institute of Cost and Management Accountants, London, has defined Marginal Costing as "The
ascertainment of variable costs and of the effect on profit of changes in volume or type of output by
differentiating between fixed costs and variable costs

Marginal Costing is also known as 'Variable Costing'.

Nature of Marginal Costing

The nature of marginal costing is as follows:
1) It is a technique of analysis and presentation of costs which help management in taking many
managerial decisions and is not an independent system of costing such as process costing or job
costing.
2) All elements of cost - production, administration and selling and distribution - are classified into
variable and fixed components. Even semi-variable costs are analyzed into fixed and variable.
3) The variable costs (marginal costs) are regarded as the costs of the products.
4) Fixed costs are treated as period costs and are charged to profit and loss account for the period for
which they are incurred.
5) The stocks of finished goods and work-in-process are valued at variable costs only.
6) Prices are determined on the basis of variable cost by adding 'contribution' which is the excess of
sales or selling price over variable cost of sales.
7) Profitability of departments and products is determined with reference to their Contribution margin.
8) Closing stock is valued on variable cost.

Scope/Applications of Marginal Costing

There are several key areas were marginal costing might be used in an organisation, such as deciding
whether to:
1) Make a product within the organisation or buy it in from a supplier, deriver a service from within
the organisation or buy it in from outside.
2) Drop a product, range of products, drop a department from a group of departments, drop a service
from a range of services.
3) Take on a special order or a special service.
4) Make which products or which service to deliver when there is a limiting factor.
5) Use break even analysis to assess the changes in price, volume and cost.

Branches:
(1) Vidhyadhar Nagar (2) Mansarovar (3) Lal Khothi 8.1
 66

A unit of Realwaves (P) Ltd Profit

All of the above key areas use the same technique of marginal costing and there are a few simple basic
rules to follow. These are:
1) Focus on relevant revenues and costs, as these are future costs.
2) Historic costs are irrelevant.
3) Fixed costs are irrelevant unless they are direct fixed costs.
4) Apportioned costs are irrelevant.
5) Sunk costs including committed costs are irrelevant.

Objectives/Need of Marginal Costing

Due to the following reasons marginal costing is required:
1) Aggregate fixed cost remains constant at all levels of output and sales. As a result total cost does
not change in proportion to change in output.
2) Inclusion of fixed costs as product cost leads to variations in cost per unit based on different levels
of activities during different periods.
3) Once facilities have been installed and fixed costs have been committed, these are incurred
irrespective of capacity utilization.
4) Fixed costs are identifiable with a particular accounting period. Therefore it is improper to carry
forward fixed costs to a subsequent year as part of inventory valuation.
5) Since fixed costs are not influenced by the level of output and sales, these are irrelevant for most
decisions at operations stage. Fixation of minimum price, dumping, acceptance or rejection or an
order, decision to produce or shut down, decisions regarding product-mix, etc., are all guided by
variable cost and differential, cost, not by fixed cost. Hence, there is a need for marginal costing.

Advantages of Marginal Costing

The advantages of marginal costing are as follows:

1) Simple to Operate and Easy to Understand: The technique of variable costing, is very simple to
operate and easy to understand. Since, fixed costs are kept outside the unit cost; the cost statements
prepared on the basis of variable cost are much less complicated.

2) Removes Complexities of Under-Absorption of Overheads: It does away with the need for
allocation, apportionment and absorption of fixed overheads and hence removes the complexities of
under-absorption of overheads.

3) Helps Management, in Production Planning: Variable cost remains the same per unit of output
irrespective of the level of activity. It is constant in nature and helps the management in production
planning.

4) No Possibility of Fictitious Profits by Over-Valuing Stocks: It prevents the carry forward of

current year's fixed overheads through stocks, there is no possibility of fictitious profits by over-
valuing stocks.

5) Facilitates Calculation of Important Factors: It facilitates the calculation of various important

factors, viz., break-even point, expectations of profits at different levels of production, sales necessary

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to earn a predetermined target of profit, effect on profit due to changes of raw materials prices,
increased wages, change in sales mixture, etc.

6) Aid to Management: It is a valuable aid to management for decision-making and fixation of

selling prices, selection of a profitable product/sales mix, make or buy decision, problem of key or
limiting factor, determination of the optimum level of activity, close or shut down decisions,
evaluation of performance and capital investment decisions, etc.

7) Facilitates the Study of Relative Profitability: It facilitates the study of relative profitability of
different product lines, departments, production facilities, sales divisions, etc.

8) Complimentary to Standard Costing and Budgetary Control: It is complimentary to standard

costing and budgetary control and can be used along with them to yield better results.

9) Helps in Cost Control: Since fixed costs are not controllable and it is only variable or marginal
cost that is controllable, variable costing, by dividing costs into controllable and non-controllable, help
in cost control.

10) Profit Planning: It helps the management in profit planning by making a study of relationship
between cost, volume and profits. Further, break-even charts and profit graphs make the whole
problem easily understandable even to a layman.

Disadvantages of Marginal Costing

The disadvantages of marginal costing are as follows:
1) Segregation into Fixed and Variable - A Difficult Task: It is difficult to classify all the costs into
fixed and variable with accuracy since some costs have no relation to volume of output or even with
the time. For example, management's decision regarding bonus to workers may not be directly related
to time or output.

2) Ignores Fixed Overheads: Always pricing the products ignoring fixed overheads may not be
appropriate.

3) Not Appropriate for Job/Contract Costing: It can not be easily applied in job/contract costing.

4) Assumption Regarding Behaviour of Costs: Some of the assumptions regarding the behaviour of
costs are not necessarily true in real life.

5) Apportionment of Fixed Costs: In case of multiple products, separate break-even points are to be
calculated. This poses a problem of apportionment of fixed costs to each product.

6) Based upon a Number of Assumptions: The technique of variable costing is based upon a number
of assumptions which may not hold good under all circumstances.
7) Problems in Regard to Under or Over-Absorption: Although the technique of variable costing
overcomes the problem of under or over-absorption of fixed overheads, the problems still exists in
regard to under or over-absorption of variable overheads.

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8) Unable to Fix Selling Prices: Fixation of selling prices in the long run cannot be done without
considering fixed costs. Thus, pricing decisions cannot be based on marginal cost alone.

9) Useful Only in Short Profit Planning and Decision-Making: Variable costing is especially useful
in short profit planning and decision-making. For decision of far reaching importance, one is interested
in special purpose cost rather than variability of costs.

10) Disregards the Use of Recovering Fixed Cost: Variable costing technique disregards the use of
recovering fixed cost through product pricing. For long-run continuity of business it is not good.
Assets have to be recovered of costs.

11) Non-Recognition from Government Authorities: The income tax authorities do not recognize
the marginal cost for inventory valuation. This necessitates keeping of separate books for separate
purposes.

Meaning and Definition of Break-Even Analysis

Break-even analysis refers to ascertainment of level of operations where total revenue equals to total
costs. It is an analysis used to determine the probable profit or loss at any level of operations.
In its broad sense, break-even analysis refers to the study of relationship between costs, volume and
profit at different levels of sales or production.
In its narrow sense, it refers to a technique of determining that level of operations where total revenues
equal total expenses, i.e., the point of no profit, no loss.
According to Matz, Curry and Frank, "A Break-even analysis indicates at what level of costs and
revenue are in equilibrium".
Thus, it is a calculation of the approximate sales volume required to just cover costs, below which
production would be unprofitable and above which it would be profitable. Break-even analysis focuses
on the relationship between fixed cost, variable cost, and profit.

Assumptions of Break-Even Analysis

The break-even analysis is based upon the following assumptions:
1) All elements of cost, i.e., production, administration and selling distribution can be segregated into
fixed and variable components.
2) Variable cost remains constant per unit of output irrespective of the level of output and thus
fluctuates directly in proportion to changes in the volume of output.
3) Fixed cost remains constant at all volumes of output.
4) Selling price per unit remains unchanged or constant at all levels of output.
5) Volume of production is the only factor that influences cost.
6) There will be no change in the general price-level.
7) There is only one product or in case of multi-products, the sales mix remains unchanged.
8) There is synchronization between production and sales.
Advantages of Break-Even Analysis

The advantages of break-even analysis:

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1) To forecast profit accurately, it is absolutely essential to determine the relationship between costs
and profits on one hand and volume on the other. It aims at measuring variations in cost with volume.
Profit planning considers the projected level of output, optimum product combination, estimated
revenue, total cost of production and is thus based on break even analysis.
2) Break-even analysis is used in setting up flexible budgets which show costs at various levels of
activities.
3) Break-even analysis helps management in the evaluation of performances for control purposes.
4) Break-even analysis may be helpful in formulating pricing policies by projecting the effect that
various price structures have on costs and profits, especially when the demand for the product is
elastic.
5) Break-even analysis helps to ascertain the amount of overhead costs that could be charged to
product costs at different levels of operation.
6) It helps in making short-run tactical decisions, e.g., shift working, acceptance of special order,
choice of sales-mix, etc.

Disadvantages of Break-Even Analysis

The disadvantages of break-even analysis:

1) Break- even analysis gives misleading results of production capacity changes.
2) All costs cannot be easily and accurately segregated into fixed and variable components.
3) Total fixed costs do not remain fixed beyond certain ranges of activity levels.
4) When a firm sells more than one product the sales mix changes continuously due to changes in
demand. Moreover, it becomes difficult to forecast accurately the volume of sales mix which would
yield maximum profit.
5) Sometimes changes in opening and closing stocks may be significant.
6) If selling prices and factor prices (e.g., material prices, wage rates) change, then break-even
relationship is affected.

“NO PROFIT, NO LOSS”

The break-even point is that point of activity where total revenue and total expenses are equal; it
is the point of zero profits and zero loss.

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Y
Sales line
Profit
Profit zone
Break-even point Contribution
Cost & Revenue
Total cost line Fixed cost

Loss zone Fixed cost line

Variable cost line Variable cost

Output X

Methods of break-even analysis.

Following are the part of break-even analysis:
(i) Contribution
(ii) Profit volume ratio
(iii) Break-even point
(iv) Margin of safety

(i) Contribution
Difference between sales & variable cost is termed as contribution. Contribution is also known as the
sum of fixed costs & profit. By using formula, contribution can be computed as follows:
1. Contribution = Sales – Variable cost or C = S - V
2. Contribution = Fixed cost + Profit or C = F + P or S - V = F + P

Illustration: 1
Fill in the missing amount of each of the four situations below. Each case is independent of others and
only one product is being sold in each case.
Case Units sold Sales (`) Variable Fixed expenses Profit or
expenses (`) (`) loss (`)
1 5000 ? 30000 10000 10000
2 2000 64000 40000 ? 9000
3 3000 45000 ? 18000 (3000)
4 9000 81000 45000 20000 ?
Ans: Case-I = ` 50000, Case-II = ` 15000, Case-III = ` 30000, Case-IV = ` 16000

(ii) P/V ratio

Profit volume ratio expresses the relationship between contribution & sales value. This ratio is
computed by dividing the amount of contribution by the amount of sales.
P/V ratio = Per unit Sale Price – Per unit Variable Cost x 100

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Unit sale price

P/V ratio = C x 100

S

P/V ratio = Fixed cost + Profit x 100

Sales

P/V ratio = Change in contribution

Change in sales
Or
P/V ratio = Change in profit
Change in sales

Illustration: 2
When sales are ` 80000; variable costs ` 48000; fixed costs ` 20000; the P/V ratio will be.
Statement of profit
Particulars (`)
Sales 80000
Less: variable cost 48000
Contribution 32000
Less: fixed cost 20000
Profit 12000

Ans: P/V ratio = 40%

Illustration: 3
If a company earns a profit of ` 800 on sales of ` 30000 in the first week, while in the next week it
earns a profit of ` 2400 on sales of ` 38000; the P/V ratio will be:
Ans: P/V ratio = 20%

(iii) Break even point

Break even point (of output) = Fixed cost

Contribution per unit
Break even point (of sales) = Fixed cost x Selling price per unit
Cont. per unit
Break even point (of sales) = Fixed cost x Total sales
Total cont.

Break even point = Fixed cost

P/V ratio

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Illustration: 4
The Agrawal & company produces & sells one product. The revenue and cost structure of the product
is given below:
Particulars (`)
Selling price per unit 10.00
Variable cost per unit 6.00
Total fixed cost per year 200000
Calculate the break-even volume in unit & rupees.

Illustration: 5
A person is planning to sell a car toy at a fair. He can buy these car toys @ 7 per toy and he has option
to return the unsold toy. In the fair, rent of shop ` 900 has to be paid in advance, toy can be sold @ `
10. Per toy, how many toys must be sold at BEP?

(iv) Margin of safety

Excess of actual sales over the break even sales is called margin of safety. The more the actual sales
above the break even point, the more safe is the position of the company. Margin of safety can be
expressed in three ways and separate formula is used as follows:

Margin of safety (in units) = Current sales units – BEP sales units.

Margin of safety (in `) = Current sales (`) – BEP sales (`)

Alternatively, it can be computed as

Margin of safety (in `) = Profit

P/V ratio

Margin of safety (in percentage) = Current sales – BEP sales x 100

Current sales

(v) Calculation of profit for different sales volume:

Profit at each level of sales can be computed by deducting variable and fixed costs of all sales.
Formulae used is as follows:
Profit = Sales – (Variable cost + Fixed costs)

Profit = (Sales x P/V ratio) – Fixed costs

Profit = Sales (1 – Variable cost) – Fixed costs

Sales
Profit = Margin of safety x P/V ratio.

(vi) Calculation of sales volume to earn desired profit:

With the help of BEP analysis management can fixed out what should be the sales & find out a
predetermined amount of profit such sales may be in amount (in `) or quantity (in units)
Formulae used is as follows:

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Sales (in units) = Fixed costs + Desired profit

Cont. per unit
Sales (in `) = Fixed costs + Desired profit
P/V ratio

(vii) Selling price per unit to bring BEP at particular sales in quantity:
Following formula is used to find out selling price per unit:

Selling price per unit = Fixed cost + Variable cost per unit
BEP (in units)

Illustration: 6
From the following particulars calculate break-even points in units:
Variable costs per unit 15
Fixed overheads 108000
Selling price per unit 20
What would be the selling price per unit, if the break-even point is brought down to 12000 units?
Ans: BEP = 21600 units, Cont. = ` 5, Selling Price = ` 24

Illustration: 7
X Company produces a single product & sells it at ` 150 each. The variable cost of the product is ` 90
per unit & fixed costs for the year is ` 90000 Calculate:
(i) P/V ratio (ii) sales at break even point (iii) sales units required to earn a target net profit of `
150000 (iv) profit at sales of ` 600000
Ans: (i) 40% (ii) (a) 1500 units (b) 225000 (iii) 4000 units (iv) ` 150000

Illustration: 8
The following data are available relating to a company:
Unit selling price ` 10 per unit, variable manufacturing cost ` 5.50 per unit, variable selling cost `
1.50 per unit, fixed factory expenses ` 270000 & fixed selling overheads ` 126000
(i) How many units are needed to be sold to break even?
(ii) How much sales volume is required to earn a profit of ` 30000?
(iii) How many units are to be sold to earn a profit of 20 % on sales?
(iv) How much profit is earned at sales of ` 2000000?
(v) What should be the selling price per unit to attain break-even point at 120000 units?
Ans: Cont = ` 3 per unit, (i) 132000 units (ii) 142000 units (iii) unit 396000 (iv) ` 204000 (v) ` 10.30

Year 2013
Illustration: 9

Two firms LA Co. and M&Co. sell the same type of product in the same market. Their budgeted Profit
& Loss Account for the year ending 31st March 2013 is on follows:

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L&Co, M&Co.
Rs Rs Rs Rs
Sales 10,00,000 12,00,000
Variable cost 8,00,000 8,00,000
Fixed costs 60,000 1,40,000
8,60,000 9,40,000
Net profit 1,40,000 2,60,000
Required:
i) Calculate at which sales volume, both the firms will earn equal profit.
ii) State which firm is likely to earn greater profit is condition of:
a) Heavy demand for the product.
b) Low demand for the product.
Given reasons

Solution
i) Statement showing sales value at which both firms' profit would be equal.
Particulars
Firms
L&Co. M & Co.
Sales Value 10,00,000 12,00,000

Less: Variable Cost 8,00,000 8,00,000

Contribution 2,00,000 4,00,000

P/V Ratio = Contribution x 100

Sales
20% 33.33%

Sales value required to earn equal profits = Difference in Fixed Cost

Difference in P/V Ratio
= 60,000-1,40,000 = 80,000 = 6,00,150
20% -33.33% 13.33%

ii) The P/V Ratio of M&Co. at 33.33% is higher than that of L&Co. at 20% and therefore M&Co., will
earn higher profit if the sales volume exceeds Rs 6,00,150 level.

In fact, for each additional unit of products sales above Rs 6,00,150; the profit of M&Co. will rise by
Rs 33.33 which exceeds by 13.33%. The profit of L&Co. under similar conditions. However below
that level profit for L&Co. will be greater. We can therefore, generally conclude that M&Co. is likely
to earn higher profit under conditions of heavy demand for the product above Rs 6,00,150. On the
other hand, L&Co. is likely to earn higher profits under conditions of low demand for the product
(below Rs 6,00,150).

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Illustration: 10
The following information is given for the year 2004.
Particulars First 6 months (`) Last 6 months (`)
Sales 270000 300000
Less: total cost 240000 258000
Profit 30000 42000
Calculate the following:
(i) P/V ratio (ii) fixed cost (iii) break even point (in `) (iv) margin of safety (v) margin of safety ratio
(vi) sales required to earn a profit of ` 25000 after tax, assume tax rate being 50% (vii) profit earned
when sales are ` 500000
Ans: (i) 40% (ii) ` 156000 (iii) ` 390000 (iv) ` 180000 (v) 31.58% (vi) ` 515000 (vii) ` 44000

Illustration: 11
The following figures are given to you:
Year Sales (`) Profit / loss (`)
2002-03 120000 10000 (loss)
2003-04 200000 10000 (profit)
Calculate (i) P/V ratio (ii) BEP (iii) variable cost of each year (iv) sales to make a profit of ` 40000 (v)
margin of safety at a profit of ` 2000
Ans: (i) 25% (ii) ` 160000 (iii) (a) ` 90000 (b) ` 150000 (iv) ` 320000 (v) ` 8000

Illustration: 12
A company manufactures a number of products & the following has been obtained from the accounts:
Particulars Cost of sales Sales
Year ended on 31st march 2003 480000 540000
Year ended on 31st march 2004 516000 600000
Calculate for both years:
(i) Fixed cost (ii) BEP (iii) margin of safety for 2003 (iv) profit if sales is ` 450000 and (v) safety
margin at a profit of ` 275000
Ans: (i) ` 156000 (ii) 390000 (iii) ` 150000 (iv) ` 24000 (v) ` 687500

Illustration: 13
Siyaram ltd furnishes the following information for the year 2004
Particulars Jan to June July to Dec
Sales (`) 1350000 1500000
Total cost 1260000 1350000
Profit 90000 150000
Assuming that fixed expenses are incurred uniformly in both the periods, calculate the following for
the year 2004:
(i) Fixed expenses (ii) break even sales (iii) margin of safety (iv) sales to earn a profit of 10 % on
sales.
Ans: (i) ` 900000 (ii) ` 2250000 (iii) ` 600000, 21.05% (iv) ` 3000000

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Illustration: 14
The trading results of Raja & co. for the last two quarters are:

The quarter ended Sales (`) Profit (`)

June, 2005 25000 5000
September, 2005 37500 10000
Calculate: (a) P/V ratio (b) fixed costs (c) amount of profit and variable costs for sales of ` 20000)
Ans: (a) 40% (b) ` 20000 (c) ` -12000 (d) ` 12000

Illustration: 15
Ram ltd furnishes the following data relating to the year 2005:
Particulars First 6 months (`) Last 6 months (`)
Sales 540000 600000
Total costs 480000 516000
Assuming that there is no change in selling price & variable costs and the fixed expenses are incurred
uniformly in two half periods, calculate the following for the year 2005.
(a) P/V ratio (b) fixed expenses (c) break even sales (d) margin of safety
Ans: (a) 40% (b) ` 156000, ` 312000 (c) ` 780000 (d) ` 360000

Year 2010
Illustration: 16
A company's report of operations for two years shows the following results:

Particulars Year 2007 Year 2008

Sales Rs 3,12,500 Rs 3,75,500
Profit (Loss) Rs (7,500) Rs 10,000

i) At what level of sales in year 2009 the company will break-even assuming no change in its
components of Cost- volume-profit relationship.
Ans P/V ratio: 27.77%, FC=Rs 94276, VC=Rs 271224, BEP Sales = Rs 339489

ii) Considering following changes for the year 2009:

Selling price to be decreased by 10%
Variable cost to be decreased by 25%
Fixed cost to be increased by Rs 32,500
Ans: New SP=Rs 337950, New VC=Rs 203418, New FC=Rs 126776

State what sales volume would be needed for year 2009.

a) For break-even, and Ans: Rs 318533
b) To generate profit equal to 10% of sales. Ans: Rs 425423

LAST YEAR QUESTIONS

Year 2002 (Economics)

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A fly-high airline has the monthly section capacity of 20000 passengers on one of its routs at a fare of
` 170. Variable cost is ` 20 per passenger and fixed cost is ` 600000. Find: (i) Break even quantity (ii)
break even sales (iii) break even percentage of capacity.
Ans: (i) 4000 passengers (ii) ` 680040.80 (iii) 20%

(Accounts)
The sales turnover & profit planning during two periods were as follows:
Period Sales Profit

1 ` 20 lacs ` 2 lacs
2 ` 30 lacs ` 4 lacs
Calculate: (i) P/V ratio (ii) sales required to earn a profit of ` 5 lacs (iii) profit when sales are ` 10
lacs.
Ans: (i) 20% (ii) 3500000 (iii) 0

Year 2003 (Economics)

The following information is given to you about a company for two periods:
Period Sales (`) Profit (`)
I 120000 9000
II 140000 13000
Calculate: (i) P/V ratio (ii) break even point lacs (iii) profit when sales are ` 1 lacs. (iv) Sales required
earning a profit of ` 20000 (v) margin of safety for period II.
Ans: (i) 20% (ii) ` 75000 (iii) ` 5000 (iv) ` 175000 (v) ` 65000

Year 2004 (Economics)

A company producing a single article sells it at ` 10 each. The variable cost of production is ` 6 each
and fixed is ` 400 per annum. Calculate: (i) sales at break even point (ii) Sales to earn a profit of ` 500
(iii) profit & sales of ` 3000 (iv) new break even point if sales price is reduced by 10%.
Ans: (i) 1000 (ii) 2250 (iii) 800 (iv) 1200.12

Year 2005 (Economics)

Adiraj ltd. manufactures filing cabinets. For the current year the company expects to sell 4000 cabinets
involving a loss of ` 200000. Only 40% of plant’s normal capacity is being utilized during the current
year. The fixed cost for the year is ` 1000000 and fully variable costs are 60% sales value. You are
required to –
(i) Calculate the Break-even point
(ii) Calculate the profit if the company operates at 70% of its normal capacity.
(iii) Calculate the Sales required to achieve a profit of ` 600000.
(iv) Calculate the revised Break even point if the existing selling price is decreased by 10%.
Ans: (i) 5000 unit, ` 2500000 (ii) ` 400000 (iii) 8000 unit, ` 4000000 (iv) 5555.56 unit, ` 2500000

(Accounts)
Period Sales (`) Profit (`)
I 20 lacs 2 lacs

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II 30 lacs 4 lacs
Calculate: (i) P/V ratio (ii) break even point lacs (ii) Sales required to earn a profit of ` 5 lacs & profit
when sales are ` 10 lacs.

Year 2006 (Accounts)

The fixed cost is ` 4.50 lacs. Sales ` 15 lacs and profit of ` 1.50 lacs in the first half & in the second
half, it suffered a loss of ` 1.50 lacs, calculate:
(i) P/V ratio, break even point & margin of safety for the first half
(ii) Expected sales volume for the second half assuming selling price & fixed expenses remained
unchanged during the second half year.
(iii) Break even point & margin of safety for the whole year.
Ans: (i) 40%, 11.25 lakhs, 3.75 lakhs (ii) 7.50 lakh (iii) 22.50 lakh, nil

Year 2007 (Economics)

Compute various values relating to different aspects of Break even point & fill in the blanks in the
following BEP table:
Case Selling Variable Fixed P/V BEP Margin Profit Sales
price cost cost ratio% (`) of in
safety unit
1 120 100 200000 16.66 ? 150000 ? ?
2 140 ? 200000 40 ? ? 80000 ?
3 ? 80 150000 20 ? 80000 ? ?
4 80 60 ? 25 480000 ? ? 7500
5 90 63 ? - ? 120000 ? 10000

Solution:
Case Selling Variable Fixed P/V BEP Profit Margin Sales Hint
price cost per cost (`) Ratio (`) (`) of in
per unit unit (`) (`) safety units
(`) (`)
I 120 100 200000 16.67% 1200000 25000 150000 11250 Sales = ` 1350000
II 140 84 200000 40% 500000 80000 200000 5000 U = SU / s
V.C = 60%ales
BEP = F / P/V
M/S = P / P/V
III 100 80 150000 20% 750000 16000 80000 8300 P/V = (S – V) / S x 100x 100
IV 80 60 120000 25% 480000 30000 120000 7500 BEP = F / P/V
Sales = units x S.P
V 90 63 234000 30% 780000 36000 120000 10000 BEP = sales – M/S
(Accounts)
Following figures related to Rajdoot ltd. for the year 2006-07
Fixed factory overhead 400000
Fixed selling & distribution overhead 200000
Selling price per unit 20
Variable cost per unit 12
You are required to calculate:

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(i) Break even point in units

(ii) Units to be sold to earn a target net income of ` 5000 per month during the year.
(iii) Number of units of earn a net income of 25% on cost.
(iv) Selling price per unit if Break-even point is to be brought down by 15000 units.
(v) Selling price to earn a profit of 20% on sales by selling only 50000 units.
Ans: (i) 75000 (ii) 82500 (iii) 150000 (iv) 22 (v) 60

Year 2008
(a) XY Co sold in two successive years 7000 and 9000 units and incurred a loss of ` 10000 and earned
` 10000 as profit respectively. The selling price per unit is ` 100.
Calculate (a) the amount of fixed cost (b) the number of units to earn a profit of ` 50000.
Ans: (a) 80000 (b) 13000 unit

(b) M ltd manufactures three products P, Q and R. the unit selling prices of these products are ` 100, `
80 and ` 50 respectively. The corresponding unit variable costs are ` 50, ` 40 and ` 20. The
proportion (quantity wise) in which these products are manufactured and sold are 20%, 30% and 50%
respectively. The total fixed costs are ` 1480000. Given the above information you are required to
work out the overall break even quantity and the product wise break up of such quantity.
Solution:
Given, sale of product P = 20%, Q = 30%and R = 50%
Sales mix Ratio = 2:3:5
SP VC Contribution Propotion Contribution
with Propotion
P 100 50 50 .20 10
Q 80 40 40 .30 15
R 50 20 30 .50 15
Composite 37
Contribution
Composite BEP in Unit= 1480000 = 40000 unit
37
Overall BEP Quantity = 40000 units
BEP sales for three products =

P: 40000 x .2 = 8000 units

Q: 40000 x .3 = 12000 units
R: 40000 x .5 = 20000 units
*****

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 80 8r*
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:

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:) 0ccouelin5 h ?r5ou's lh.l- nqhuno-0 divfdend I's
thot P*,b$ bhl. c-ornmocltfo inotudind b-L cou;tse
f ne.o rn-a &xived
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rru.os uJ{d tn rnorug .b

@r Incorno eaxrzrd bd L+& Cr'hzen

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hl. m ctodsd 6 ++le no h'o no-{ i ncorn e .

tb) 0n I bhob ?artl ts thclud cd tn nq h o nq { ,'nco ,rr".

tOh ich ,r, rnea;,u1ud .{il tettrns rno ne$'
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f P tfroJt{" .i-t "15 Cern rn o dl I oJ{ Srxvt'cL Lr#Lr-ch
har ho monry ,ol*:, f4 ib Catn;L be mdtrdd
in fi?-,-
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l=n 4 tto. co ttntqg . h.n exomple i b q-

no h'ono{ thcornr,

I
nuxge to-kgl coJ<'a' 4 h,a.x ocofi r'ck ch i ld .rn LLw S

thm el,rrh a StXvt'C{- LAflrro} be tncludeol

I

{a*it5,
rn nq honol lncornc. bru.c.ll.e i L (o.rno b be ml..atustp-d

tn .terrms .{ morud.
cR IIJS r4

ti) ln otdr.toble to 6axue;c _ eco nonn#

bqxbex
,,

-? f|tr3 .tS not oppL'cpble

lt
ul tgJ'-!- sgsb elrn
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tir) LY nnokes LhL orur" uncortbaln

-+ C-orf€xed u.)co
t
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4

exffik$ sek #w%,ffi@ g*'ffi w#w&

rur{&q- taLc Crrtt!- "t
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hi}{ o6n Srb k clu'ld af ho me-
ffi
+trur, glll.oh o Se.rtvica- cr.nnot be &'tduded ; noh'o nq
L

Lnco me bocau& ;b Cqnno L be m-tuu't<s"d ti'} te,,<rnsl

rnon$ '
"t
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:

DE Co r.r
\
F'lSt{ eR's I

sL t'ncorn-'- &r
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L" FisheN Th_a- {g-r,o nationo-[
nal
(rl
thot e.rl 4 t?ts onrulo! n-o'b guodrmo cl*thjch
fi
drr.d6 co rurrmr'd dturlild tftah SLoo+ '
Th tr-g n o h o no} Cn
co rn-s' t+ G' Co trn L*ry .rg agLeStlr,,ntJ
bo t bg its
n oL bg i|8 annoal f 'xodoch'ora
@ Coosurrnfh'on.
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Fox eg t* L+u- yo{rr-c "i a cq-Htoi n Soods ?r0 &tu-d so6

O Chairr \i"t e4A0J tD Rs 5oO th +f?-a- gle-qlc tggs
,amd S-r:ppose *hqL th- ,-tr*n- sP*,', % thq L cho,ijl
.ir, I o A{oxr t Ehttw ths mo r'1LB r" o tuc Q co n surn ph'o't'
U
q cho i.rt LLn lg 95 uL; lL b e Rs 5 o uiil' ctl^L s lro uld
bet,ncludedth+fiAooh.onot(pqgrrr-n.,|LbhL...,t*d
CRnae;a/M qRlrr crs n4

(r ) 0 ikfu't .rn e,sh mqh'on en;tlq c_o ns Lrrn p h'o rL

- k* r+
ph'on r|
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( ii)

-) fb .,iJ uay dr'e$rcurt bc ea{-rrnote {+u- .{4"- 4

d113{gbt4- .
tuod:
(ifi ) .rfl fru.o-EUXaD bfrL oc^ln-uclhi

) A duYab t-a- Bo0 ds - s:ltA o-, Scoot ex- nnty qo-e)

hq'ods +-fiof it rn?y h-rcoms-
:

thrro€h dififxenL
d" knoco th- datl, 4 rnanufocftr^;; '
dr'i#'"rtf
lr] o D€R N OEPIN I{Iq }'l
tt A nohonal tncorn-o- tfia lrio [arrn-a- *t
L.,.,'*nodl'h'e, A;'td eutrrcei UJ,<r?Ld oub 4 otu

tho u b &:yL'cQ h'on

oiferrt PeHr'od Cou-rltecl r-o
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2) N+ Ntqhbnqt ?+ro drreb C xt t'.t P)
3) Nohono L Tncom-r- LNT)
q D isposabtr- ?ertsonol anco"n_L (O prl
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l
a1)
GtoSS NteTro nJeL pnoOUCT tortrp)
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-t
d,r- h tqt
<1xo&-rch'on "+
+ {ood s $ &sruiee* un " gi\rern puiod.
1 & NP inq\od€J ;-
Ca Th-a- rno""g \nattls- g S,u{vice^ p&odu.-
G q UEol Ln
"t b.ha! $ood, auoial dou bL
I

Q-d a QConornubo
()

alt-a- those telhjcl^"

-t l

F-,'na$ $o
l *r,I,s:s:il+i} I
rffi&he {.:<.::i:r YR
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.::::vl.la.! &

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tr:l:9.:*i:

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r

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t., .ii.i,.,r,i,:i,i

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t[s. ._*,irliffi;:-\i
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ti Boodg $ S[-etVrceS A$-a-

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l

ii Sold Lrn lgg Ur11 urou_ld bo- a ?"*b t{

Gtt{? hst *" tq q q cnd not includrcl Lh G, N P
Sqoy
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t{et in corn-o- Forn o.Lyoad .

J
Gr N P doegnot in c-\udel '.-
.)€
Iq) Fxu gibtt 4 €oods S Sae{vicea
iul Istonrp A$rnents e.3. fension, u-nernplgmlJ* o-lJoco-
o.n(e, e.lc_.

. lC) rllegr\ rnm rnr e'3 . SanulStr-5 , h oaxd i E q be '

-inco*"
Grrrr llot +-Net \x"rn obstoqd'
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fncorn-c .iLqidved bU +h-r- .i"

duclos, I to,odrrrlt'oft
tutrns xlnt, tuloJur inte-x.ttt J 7'.xo[.] d^*t"d oL
"t (ted th, & tq f o b |oclost CosL .
gLorL uir Co

GNp(oLFC) = wa,, 6 Solqg,ior* A,,,L+ i,-1|en-r,st+

! + 6 iuiden d" + t-rnd-rr}e(ibuted rf+t of, t 4
?s{otj "*, So.trete
+ costpouoLe toxes + &pJtl(Lobion f a-eL r'rrcornr [xonn
aLxood'
[ii ) N? at rn q.}Lket 9qg-
G{

To donive tho 0{N? at rno-rtket ?.r{, * add tt *

ir. r.urcF to*
indi*uc|
"l tq*q3 d.rl 6 Uutt qb
"c. ,r.r,
qb {oct'o.q t arnd
cosL
{qctost eos orn.0

dd,m* ffi'65ffi u'#Mffiru6qy',ffik

dffi,W ffi .t P W W") ffiWrWd fu' ffi,ai.g
"fu*ffi
ff.tr cffi,ffi &W S ffi S 3 ffi
N eTB$[$eW&,S&,- Wffi,W W

Nl N P u8 Co\ rul qted bg dad u.h lq ui-{,.Jt a-nd bgaj.<-

?CJ
nnorJ.rn rft or( &P".otro['on
"f t*-"- th!- &N P.
- 0. Fr.ot' o'[io n
N NP = CH NP

4) (firrorueL rNrComE (Uf)

NI = N N ? -'IndirucL tox.,r t, Ser bs,'dr'e*
t+) ?ERSorueL lrucornE CPI)
+ p *f*^t, Jrq{d
'qd 66 L}zr-

Cn d iv idrral^s ot9r- ho ureho I d-r auxrn5 o, Uaa:t .

un&btu<r'bted ?oS t a9{4 dsd.d-cLe d. ana t.Ho"nsAer.L

?%mgnl.3 a+t!- o-ctdr-d tp rn{ utlated Are- *i*
it
Lju>onal Lnco rYu- '
I pr z Nq Lionol inrorn-{. *4 Cqstpo.yra bL fnco rn:- to re-b >1 tJndnhb
uled Pr{ob,} F So&a,t' Sr-.*r.ig Pgrncn+ + T+rqrrr[31_11t,
\
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E
a 116
a
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I

Ld-hi ch .l} Co rE Urm td

+
bg tl'u- indivi&ols '
oL Consurnee( eqm toke
It d> Lhr- inco mr- tofu &
di'xacL tove'r'
ho*-r- oftex .P"di B
D?I = PI ?er<sonol disrott {axei
Tt ,i, nob ngrllxa+y Lhot t:hoL "t Dpf .1r Spenb

on Constrrnphon ' S" "; ?*'t -l i I rn g sqved '

OP1- = cons urnPHon + Saving

thus ,

gug OF ?R.ODuc1 Io
N nnET H0 D
tr) CE,N
4
rp'-ffi i
tc) t

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v.!rri:til.!

riiirrl:iiiii $
ii:::,t;i'jj:ii .$i

thffii

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rs q&ffuflcerl -1*"
Lb) *"1*ff"$"y.'h*o6'**gHufu* ot. ' co.'ol*8
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' od ded tD CvD P *"
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ohxood

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Thon ind i+uct to*"r ax!- &aucLed 8 rubsidie"
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Incomr--
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U

cb)
Ci; Inven f,u.J, i nvct h'rurr t-
U
qii) Cixed co pitnL invelnnen l
(ct &.uodl I k(icu ?+."9*d bd fh, g,res,nrerf
t ir 1l include,s inueglmenf r'rn +toods , botid6w, dorng ,
Canals, stai lto:2r cbc.

tri ) &)tu icel U ke Afirn g , &Ftt- r f otr'ca ) edpco h'o n )

rnodr^ccL rJusbce etc.

-.,,,$**''ffi 'siii::ili' -:ir'i+ ill;,iii'1it=ii:i, .,itt*u\.t'$
OLlt

ti)
doffiuffi#fu' hit,-
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(z) CE NgUS 0 P [tuco fn e fnE T [-{.o D

come 4 o!! b{,L {och$s
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4, f+todo&on ..{x' +}& torurn (J)o?"L

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in'tert-o.rt ,?deril'b e-tc &*'r5 a ff* .is ad d&d

-F" con c.,LloH.€ +h, nohbno0 Gcome '

tt
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iol *lob6 nqhbn"0 incornr- ;-
[) T.rrqns{u,}trenbs ti ke fensio ns , ineorn - }""rr.
t-Hottj, M*?l5nnEmt o-l.{tacmee} thootd rroL 6(
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frry'rrf-Ilry r!ts,--sfl {' di,,,':'

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ug c[,r'ffcu.[-,L' ten o ro
Sorind oo{ bo"lq I lnvert-rn Enf rncde

SOCIR L QccoUruTIruCq fne -rHOD

us d ivided rn|o di{#r&rnt

cohole.
srct}ru i
"t btu" eaon"Ay
Thi" basrs t$* d vision di6lourn t sccl-o.:ts
"t r
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tl'u- rocorn-!- b ore

dJ(o.,f cd tl't sgn[ tncornr. uA CAtgo.r.tsed ,rh on e

Th&
cobgoU orod .Lr'ketoiu bhr ,ocsrr& bha" t:holg eronoqy
+
CarrL be obbairuJ I oddrn5 op bh. thcorru- d.i/il{xu,t
{
Cotgoxiel.

fnnPoRTnNcE oF ru eTIoruRL frucornE$

:1) ryfurrtce tn €conoffue pLry
-a NT a.rd eJecHws 4
Sqvitr, O
t inveltrnernb
'r -- -v' arnd ?.xsdosh'om ,
8o ;t- l*tPt *r,
Un purnuLqhon .rt
0
economrr, ?lernB.

[.J I\Po.r<tarnca,- -rh Jrrteflnqb'onel Gm

*i oith, ths [*t
F 4 *.11 er-L ca/n 1.<no (,J h ficorn-a-

"[
tountl<.,'e-b 4 tfrs (,sqxLd . Th{rrE u3a-
Con rno.l€ q compqxr-so n "[ it arnd q,offL lcnocrl eh"
Qrnnornic daveJr?rnenL
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fu d^Pb coLrrnL$dq8,
In .xbarrucs .in slpO rlr
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NJ onalsrs hnlp* dh slud3its L+e t+to& Cgcles 120

a

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ir

in[-{oh'on , drflohon , dry ru*'o .,, ho- eb.,c.

(q; fmP outom cL .rn io"terqsHB

,-+ tl Lhlt* .rJ a con Linoout tho<$le .rr, (nco fru* 13rt G-
Cotrot+tg cextori! it c-crr'tl q)o{a-be $L ootpu L Arnaf
I

e-plg rnunh .rn thqL co trrrf ly and urr. Co.rn ujdf

Conctode Lho b thr- counL+g .i-r erJru-oag r^noviil h toalHda
econornit
f+rosp<xtI

l5) frnPo$tarncr- .rn ?oUp .ltrn uto-h'o n

) 0n t+?!- bau; t oohonq-t dc.rru- dqbo- e,_ t-nonD(a-

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h". e-:\$.::F**
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i r.tiiir"r*
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"-"- :t,l
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't'.rr;i;i:rili *&,-."*ttl$
}Iih,r

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u) Oiltr'c..rrB s[
Sell - co"n^surroPh on

-+ Th.L r7**t o{ S,,tJutlturu

cohich ur ltept [ox *t+
GrstrnnpHon .J.s no t ta.kqn tilh. Considurq h'o"t ce.LUL t

l, .ta-tctrloh$ oq hono0 anconn € '

ol."

(zt l;^,Oda-qllAte. amd U.f'Ju.L'abl-L doba

d cotr,,t'xr'el
dquetoPtd
) TILL stoh'sh'cs ovoi65fF-*dgt
6 Crn.}tqfuqbb Ifr1l{r arrc no
o..rtr- trl c.&qAahL
Etohshcs t J. S rnoll gcq lr- arnd rrud i trrn Scotr indur-
t+tie^r'

r LUL*regf 8
t

G: .t(t Lgno.xo-.q
.-.) rnost d - ru ?o.od^^ o,u in dwelopin5 $ wrdurauergd
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ggxvr'ces
\aq l"-uj"
Oi
In" thx ebhrnahon
l*
thutl- al<L \no.jdou$ fuJ$icer
u3 l^u'ch S Li$ .djkh,urAt {ho Cn-UdL G-s t'
\oor
h.cr) ,r;,g,ut,h 1ra[I1-a- Sl"uld h" c,tt eg1lttd LD tt*" R-[g(ut'c-s- '

ffffiqh PL; Iii [:fT I\fiORE

ffi**sf s s 'z i ij {; t:} s :i o
*sr*f,A11r\iaVH$
gtouu ?ousrhg ' H *6i.

9+,obliT, * ffi
-Ln c--- e A-rtsat elt tossib\6-
ir"u{J \'/'
Cot-rnb'H t+r \fqtr!.i- $ &s(rriee{
4 I "l SooaLl

t oi* qJl. Urctcts- br^t'"ch ?stovid e u) **8

mqh'on .

l\ FTI0NQL g t{co rr E g ECort:ornrc uJ ELP S Re

rno$&-

eronornic L,rdL* ornd \r i(A- vqRso"

Chqrnqe .tn s iee* +1u_ nah,o n"l &Corn{ A"., d {rsnornic_

t.1 )

$'tr
Nqb'ono\ tncorrl e (nrn be cry .un &r:o Lr:ojls
G) 3n@ ..ir) 5 t-t ( b) sEc$e(}&r ,h t{1.
(oith 3 nq}{l-crq u,, N I e uct{g1gaa qflo th cxlo{'q
€Lonomi

amd caitt ++rs &gtlore in t'lA Sqonornrl ,lrq{oltl.

o-1.!l: dacfl-q-&{e} .

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Ei 'r-a.* q th- Na and {rono.nic- rr.asl.|axs 0
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ExtepLto ns
[q; IF ollil the $uuay- .-rh t'tl t*rs sharu o{ U'n
too' 'peoptc
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Nt cfd ine* *:lro ecor1g nnic caa$cx" d.el no b
.rno-tl,o#a .r;{o"{- €conomic oj-urcof ol '
'{rrallra}<r
(al a? u1 q}&o..te u-n noh o no! anconns ,iLord* t, UXXqa{& rJ^)

consfrtous consurnplon e'd- $orrrborf}, d.xrirki 2

ele +fiqn
;b GniJ not .rh uaoa e I+u eronorn ie cr{artl 4 *'!'
Counbg.
Tp t{-," Sou,rrc-o-e 4 thctsor,L uh NL .n.}L{- .r-Lle5o L L+rr4-

it ui ll not mtlQas€ econornic- @ '

1p
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p .3xs$&$*#* &'g ffitr# SffitrffiWSWffi3#

(et f NII .rhtruo-le,r d.,u-n b tfi* fr;*"n'"" 4 no.-%ruo ,,-t<b

qli {{ not
6'oao &'{<e &rqx urlc f o,t +hrn r'L .thotoar.a. fPu-

econo rnic crrdfcx" d5 #t{ (sun*"f

(z) e ,_u^, +fi_L dn|rd&rh.on Nf and €cononrfc u&{

-)l h'on -[ I carn L" cr[ {oo. $Pu , -

f{
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M tuDhib- o;n ++-,. S.-oronJ Catl- econ o rn f , ,-gxJ{ eX.
dltJtaaJaS -

-t A*r5*;*r€n|5 .rr, 4 11'e above Vtkr.o S-X{- : -

Ftralt
-.*ltaH.!, da{u t" tq-{fi d-fl <rnd qrorL
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tlu bt"t (hcorru ,xotho< it &p*d, *po"

th! inco.,.r u&jch .Lt Consurrnod. On (n (r{gnr-{- .rh {Jrrs

inco rn-,.- thr- t"o.)t u!-11 LLhtl-L'-eu- +ftL ConsUnrnp.l"r o?e I

*
(br Thi- mafi.i nol oh G!) |"u rno6 ,t3 {no+{r
}".rt foo.}f ruopla-
tl,u{r {** Jdrh
I
Tl..il$ i& ,ah(or(e .u q d.ir+d.u'bo+ed
F.rrr
tlt-r'ch {" f oo-rt t}zi-n 1{- bod,f .t
Jllo{roll .1f, €CSnorn iC
*{* 4 foort TeopLr cu-,idl,- ilbotu& 'n €flonorn lc
.Iuih f eopts- u1hj & o uc.rtql-l uhcxqnr,tl t * er-Doo nnr'c
4
*t{*g {L th. countsg
rtrsffi-"rt o*h* t" t"
u
{&) Tt,*
;Jp?,ff " L,s u,o pno n
toi bh Lt"r ,.ef, (X(F-r>e un fiUtX mCO fn!_

r&l The-

t}rr
(5) Slotr+
.-, .etqbi U! un t+* Na rn-Lo-n, +fu absanu * L^xq_&
%cter qrnd e ccrnornic prcfuqHoru.
Ou-L {, Na hr;rff
StqbiU.g .rn h-ttsrn-r- b"larr*J
+,tl.}.{ .i} n o d-1, i,L b .t*{f{* dr" .tn-"d4 h
Ltn-.lu\

ttononnic s babi L. Tl'.*' €cor-lonnic a{axr

,
\I
U $
%
!
,f

+l-,t Lo rrntJ6 .{ntX{oJ,eA e

't
 i

124
l'14

.:'..$io*r* waves
serwices rPt ,'a
..:::f
i*.*"'-"
tion of Weighted Index F{umbers:
'Comsts"ffie
There are two methods of constructing weighted index numbers:
(i) V/eighted Aggregative Expenditure Method
(ii) weighted Average of price Relatives Method

Weighted Aggregative Method

In this method, nurnber of units produced or used or sold in the base year (qs) are
treated as weights and thus following formula is used:
Po1 :EPlqOxl00
EPoq0
:
Here P6r Current years weighted index.
:
EPlq0 sum of the product of current year's price and base year,s quantity.
:
xP0q0 Sum of the product cf base yeafs price and base y"ut, quurrtity.
t:'

IMeighted Average of Relatives Method:

In this method, price relatives (R or I) of commodities are computed and they are
rnultiplied by respgctive weights (W); again the sum of these pioducts are found.'They

ffiw-ffi#wwffiffi?gg%,&frh&
This method is also known as Family Budget Method.

Illusfration: I
Calculate weighted index number for 2012 of the following data by (i) Weighted
Aggregative Method, and (ii) weighted Average of Relatives Method:

Base Year 20t2

Commodities. Price Price
&e) Qrv (kg.)
A 5.00 -aty10 7"50 9
B 2.00 2A 2.4A t7
C 4,00 5 6.00 4
D 10.00 7 I,I "00 7
 125
tL+
ft
at

,:;"ifft.$***, rffawes
se.vices fl-& r g'r
t$an#*9€nre''rt
' . "a
""rsl
Solution: Calculation oi Index Nurnber ror tlj t! at
'16:
r

{hy Wei,qltted aggresati

gtT teQ sggrega{t\;e d wei
cff?d l,yet
@ys&p_
hted rela 'ql

Base Year 7*12 Weish ted Aggresgtive trtr :l* ff vfi.,+

Cornluo- Px-icc Aty. Px'i*c
-S3+l^^
i
r&E t"EU$ (tr8) s'E qs Poq<> E}
Jll" tr RW'
c{.L-i-_- ks-
I

.frs or"!v
I

A - i i i0 7.50 7s 00 s0 00 t50 7s00

Y\
I-{
L-9
r-1
2lz*
,tis 2.40 c0 I
.ig +0.00 120 ,180*
i

T
6.0s 30.00 I 20.00 r5fi 300{}
i

D
-r0 i t I 1"Lr*
TotaI
Jt.00 I 70.00
-r t/\
I tU 770u--t
] ndli'i i
i

Jr,-fr\.rt/L'
" i

Weighted Aggnelgtrtive ivtet{ra#:

H. It /!f rI !

Foi - IPlgO x lti{l cr 2j_0 x 100 : 127,78

IPoqS 180

ffiffi%
ffii,eEs

.ffiffi#
,,ldl;'-
rSl^i*2{. "
id 1)"',,;
H.,,*o .i*
,/tJitPr ?.S
w
wt -1.i.
.*,if i,-A'
.
^rJ:

i/
.{,:
!l;

qM'
s .l;Yi
Lt*t$;
ffiv

Methods sf Weightir*g; The follc'',vlng are tlie formulae

prescribed by various statistician :

(r) Laspeyer's Formula: Laspeyer uses base years quantity as weights, the
formula is :

Pol:XPlq0xl00
EPoo.0
In weighted Aggregative Method, the same formula is used.
:

(2) Paasche's Formula: paasche uses current years quantity

as weights, the
formula is;
Pol :IPlql x 100
\aD^^
4r rrLl r
1

(3) Ilorbish and Bowley's Formula: Dorbish and Bowley suggest

the forrnula
like arithmetic average of Laspeyer's and Paasche's index number.
 126 tw
n:

.::'Jf.****, r#raves
srsr',i(_s rPr r-ta
, .,",:?
r
IP.lg0 + IPlql
Fol - IPoq0 IPoqO x 100
2
This formula can also be presented as:
Pol : L+P
2
Here L means Laspeyer's index and
P means Paasche's index.

(4) Fisher's fdeal Index Number: Fisher takes the geometric mean of Laspeyer,s
index and Paasche's index. Formula is given belorv:

Pol-EPlq0xIPlqt x100 orpol-tr kp--

lFP^nfI IPoql
YD^., I \
,jEPoq0
',
Illustration:2
For the following data calculate Index Number by using formulae (1) to (4) discussed
above:
Base Year Current Year
Commodities Price Ouantitt' Price O.l*amtify
(Rs)
WW
A 10
(kg")
15
[Rs)
T2
{kg.)
T2
ffiffiffi
in
B 3 IU 4 i0
a

C 5 100 4 r20
D 7 7A I 50
Solution:
C (}mDurft[l(
tati )n o f Ind ex N Dy ulllerent
NumDer bv Diffi Formulae
F
Elrt o^ Vr-,.. .- fl.-
r.rrf[]rg I t4.f U r'tl"!. Ir..r\EITI"
rri 1 \,2 ^ ^
I EIII-

Comrrlg- Price Qfy, Price Qry, Plqo P0q0 Plql POql

dities Po q0 P1 q1
A 10 15 t2 12 180 150 r41 -
120
30
I

B 3 10 4 10 40 30 40
I

C 5 100 4 L2A 400 500 480 600

D 7 7A I 50 560 49A 400 350
I

Total 1,1 g0 1,17A 1,464 1,100

(i) Laspeyer's Formula:
Pol - iPlg[* 100 or 1180 x 100: 100.g6
IPoq0 tL70
 127 try
i:

.::'i;&#o**, rduaves
se^rto:es tPt .,a
..:,:?.
f*-**
(ii) Paasche's Formula:
Pol - IPIqI x 100 or 1064 x 100 :96.73
IPoql I 100

(iii) Dorbish and Bowleys formula:

Pol : L*P or 100.86 +096.73 - 98.795
02
.

(ivi Fisher's formula:

r--
D."
r tJI
1
- lLrL I UU A, ........---
L/f I LI I x ioo : i[go,,T$6+x ioo: Y6.l I
/^t n

{IPoqO IPoql \j t179 I 100 :

C*nsumer Price Imrlex F{umeber:

Methods of constructing consumer price rndex Number:

1. Aggregate Expenditure Method or v/eighted Aggregative Method.
2. Relative Methods or Fanrily Budget Method.

1- Aggregative Expenditure Method; In this method base year's quantity

is used
as weight- Ii is assumed in this method ihat if the consumpr uses the same quantity
as
he used in the base year, how unrch expenditure he will have to incurr.
Fonnula is:
Pol:XPlq0x100
XPoq0
This is the same formula which has already been explained in Weighted Aggregative
Method.

Illustration:3
Calculate Index Nurnberby Aggregate Expenditure Method for 2007 taking 2012 as
base from the following data:
 128 )3a

al
af

"o %;*Re*I
. : ."r%Lt* }ruaves
$f,ot services f',l tta
,"* (lg #*tg*rm*nt
t' .* c
tt
^t

Cosnmodity LInit rPrir.p

rr!L,r/ fI?"\i
tri.\rrl ,P1-ia.6
iii.U /flo!
(ia.Si
2007 I 2012
Wheat
Pet quintal 2 quintals 250 500
ICE quintal 1 quintal 400 550
ln*t
Arhar Iro 20 kg. {r 14
ir,*t ^Lli-,.

Sugar ipet kg. 0.5 guintal t0 15

Salt lo*. quintal 10 kg. 100 150
oil lo*, kg. 10 kg" 2A ,,}0
Clothing Iu, metre 20 rnetre t5 25
uel lo*' quintal 4 quintiil 50 75
EgIl l**' house 250
C."Ir.+i.\,tr.
\}trrtr f,Itrtt " Constriiction of Cost of Living Inrie;r {Aggregate L;rpenriiture Method;
lrr
Coxmrns* {jt}r" msed Prics Price
rlity- ?s#? qs tlnit 2#fi7 l,o 2012 PX 2[}#7 | z{}tz
P0q0 i PIq0 ,-.*

iWheat 2 qntl.
I qntl.
I

F.r qntl.
F.r qntl.
25A
400
500
550
500
4ou
I i;;1
ss{i
.i*
:.;6
i#ux**
'ffim
ffi
'ffiffi
,.W
'e;*

[*i"* I

firhar 2A kg"
F*'kg, 6 14 17* I ?Rtl
-v
v I
I

5oo 7sa
I I

ls.rgut 0,s kg. b.r kg. i0 15

ls i
I

I
Salt 10 qnttr. per qntl. 100 150 ln
ru I

I i

Qil 10 kg. per kg. 2A 4A 2oo 4oo

300
I

5oo
I
Clothing 20 metre per rt]t. 15 25 I
I
Fuel 4 qntl. per qntl. 60 75 24a 3oo
Rent One house per house zsa 37s Zsa I

I 375
I

Total 2,52A 4,170

Ipoqo Iplqo
Pol - 4P1s0_x 100 - 417A.x 100: 165,5
IPoq0 252A

It is evident from above that prices have increased bv 65.5% in20l2 as

compared to.\AA7.

2. Family Budget lVlethod: This method has already been discussed earlier under the
Weighted Average of Relatives Method.
 129 l3t
..:
tr3
". tReaf
. :'.'.ti"t lJUa ves
*'v;ccs lti' ttd
.'. faa io*
'rt i
Formula:
Pol : ERW
EW

R: Price Relatives
V/: Weights
I: Total

Illustration: 4
From the data given below calculate the cost of living index number for prices for the
year2012 with 2011 as base by family budget method:

Quantify
ccnsumed 2*1? Unit
1i. r.'t
E-.' n. A ,--.-i.,* ^
Ja 1n
I1c) nr\
^.-i-l^l^ ^- -:.^r^ /^\rI
Lru5ld.rri} LlLrlrrrar ) 1
i.?ui tlut iILat LL .t-r l.J O.UU
Clothins'(} 12 mts. per mt" 1"S0 0.90
3. Fuel 40 kg. per kg. s"20 4.25
&
House Rent 3 rooms per room
Miscellaneoirs 30 units p'er unit
25.00
0.40
23.00 M
ffiw
0.50
oIu W
Cost of Livins trndex Nurnber
'Fqmily Budget Method)
Group Qo 20lL Unit Po P1 R P0q0 (!Y) RW
1. Foodgrarns 3 qnt. per qnt. L2.00 19.00 150 36 s400
2. Clothing 12 mts. per mt. 1.00 0.90 90 t2 1080
3. Fuel 40 kg" per kg" 0"20 0.25 125 I 1000
4. House Rent 3 rooms per room 25.00 23.00 92 75 6900
5. Miscellaneous 30 units Der unit 0.40 0s0 l2s 12 1 500
Total t43(rw) 1 s880

(IRW}
Cost of Living Index Number for 2*12 {P01)
Po1 -IRW: 15880: I 11"05
IW 143
 130 l3L
I t:

"."i;*? io**,
,: lrua,es
services I'1 tta
,.tt!oaJ-**
I .rr i:
.ta

Illustration: 5
construct the consumer Price Index for the year 2a12on the basis of ZAn frorn the
following data using (i) Aggregate Expenditure Method, and (ii) Farnily Budger
Method.
Quanfiqv consumed r
Prir.ps in
r .at t,\, ll_4.
Pri.lac
L I fil,,tlz\,
irt
I'I.I.

im 2$09 2&1I G?.s) 2*12 {Rs}

\Yheet 1s0 kg. per quintal 2*0,00 30c.c0
Rice 50 kg. per quintal 500.00 700.00
[Pulses 50 kg, per quintal 500.00 600.00
lrsst 9 pieces per dozen 12.00 9.00
lp;*t, { lrcr
r,, lta,. l- n
y\rr I\8. 1 nnf-\ lC/ar\
^t6. r U.UU r J.UU
ffi;ken 10 pieces per pieee 20,00 30.00
lcn**u* 2C0 gramms per kg" 25"00 30"00
le,rtt*t 2* packets per packet Ann

J.UU 3.00
l*tto 20A kg. per kg. 4.00 4.10
Salt 10 kg. per tonne 1000.00 10c0,00
lothing 100 metres per metre 10.00 15.00
ntertain-
'a

ent 30 units p€r unrt 10.00 1C.OC

ouse 4 unit er unit 20a.00 250.00
S.rppose the importance of various items in the family budget ur* gir.,
as below, will
there be any difference in the result?
Items: Wheat Rice Pulses Eggs Fish Chicken
'S/eights:
30 3025 I .52
Items: Cheese Butter Milk Salt Clothing Entertainrnent House
.Weights:
18t 50 30 26
-
{one tonne 1000 kg., one Quintal 100 kg.)
-

i-$#;i:ffi4$11",;1gt:riiu:ti'-'::,,--'',*
 131 l3i

.::'ii"'io=r, uua,es
se^ricec fPl rta
.r.alotJT*me''!t
"t ,tt I
Solution:
Calculation of Consumer Index
Prices i Prices Price
lQuantity YaIue Price
.1. Relatives x
Commodities f.orrs,rmed Unit
Inlm lYeights RelatiYes
Value
lln zot r 2017 | 2012 or 1V 20ll :100
Weights
{to) (pr,) i (p1) (P{}q0} {R)
| I {Pl ri{}} {R1,1}
I

lwheat [150 kg. b.r Quintai 2oo i:oo.ool45o.oo 300 150.00

[4s,000
lso tn. b*. Quintal 600 3s0.00
fRice l"
[50 ks.
I i700.ool
soO l600.00 I 3o0.oo
300 1r6.67 135,001
i

lPuises h"r Quintai 250 120.00 30,00c

Fget
ltJ

19
pieces b"r Dozen tz I q.oo a.t s I I 75.00 67s
pi'r,
l^. . r
)kg fer kg. to I rs.oo I ts.oo s0 150.00 7,500
pftcKen 10 pieces per piece za i:o.ool:oo.oo luu i 50.00 ^r-\
JU,UUU
-\n r\

Cheese
-' 240 gramms per kg. 2s [3o.ool 0.oo ) 120.00 600
lButter ZA packets per packet
,
3l:,ooloo.oo 60 100.00 5,000
hralr
I
200 ks. per kg. 4 | +. io I szo.oo 800 102.00 82.000
lSalt 10 kg. per Tonne r ooo [r ooo.ool 1o.oo 10 100.00 1,00c
ro I ,r.oo | ,roo.oo
I

Clothing 100 metres .l per Metre 1000 150"00 1,50,000

Entertainment l0 units I per unit 10 lro.ool:oo.oo 300 100.00 ]0,0c0
House { units I ler umt zaa lzsolo I looo.oo 800 125.00 [,00,0c0
5177 .7 s 4084 1558.67 5,17,776
(zplq0) (Zpoqa) (TR) GRW)
or IW
(i) By aggregative expenciinre method:
Pol -EPlq0x 100:5177.75x 100: 126.78
XPoq0 4094.00

(ii) By family budget method:

Pol - ERW: 517776 126.78
EW 4A84
=
 132 ts\
t:

.::'i;&i**ro sr/a,es
services rPr rta
..:.:?f*-m*"?
Illustration: 6
calculate Fisher's Ideal Index for the following data andshow thatit
satisfies time
reversal and factor reversal tests.
Base year Current vear
[Articles Price (Rs) Quantity (KS) Price (Rs) A"-:t!,j$i
A 6 50 I 55
B 2 100
.1
J 125
r-1
L-' 4 60 6 6s
10 30 t4 25

Solgfi*g: Caleulation of Fisher's Ideal Index Number

Base Year Cunre. nt Year
:

rficEes Frice
tP0)
Qty"
{q0}
Price
I a*,
{PI} L tqtl
PSq0 Plq0 P$q1 PIqI
A 6 50 In 55 300 450 330 49s
B 2 1C0 J 125 20a 300
rl
2sa 37s
U 4 60 6 65 240 360 260 390
D 10 30 t4 2s 300 420 2s0 3s0
I otal 1,040 I,530 1,090 1,6I0
r: ^L ^*t
Fisher's Ideal Index }*lo -
P01 - * 100
r.f rpoqo Epoqt

x
1610 x 100 or..
\-rr\
\ x 11366 x 100 147.41
i
:
ri1040
1-{
\i
1090
100 or !23.93 Time increase of 23.93o/o tsrecorded.
 133
[Total No. of Pages
!+
F{
t-{
\o M.B.A. tr Semester (Main & Back) Examination - 2015
e
=
F{
M-104 A Managerial Economics

Time : 3 Hours Maximum Marks : 70

Min. Passing Marks : 28

Instructions to Candidates:
I) ' The question paper is divided in two sections.
2) There are sections A & B. Section A contains 6 questions out of which the
candidate is required to attempt any 4 questions. Section B contains short
case study/application basel question which is compulsory.
3) All questions are carrying equal marlcs.
Section-A

fr Define Managerial Economics. Discuss the Nature, Scope and Significance of

Managerial Economics (14)

2. What do you understand by opportunity cost? Give suitable examples to illustrate

the use of this concept in the context of managerial decision relating to
a) Production
b) Finance
c) Marketing (an opportunity costs ever be zero) (14)

a) Discuss the uses of elasticity of demand for managerial decision making (i)
b) Define elasticity of supply. Discuss the determinants of supply (7)

4. Write short note on L.5''

a) ' Price Skimming
b) Penetrationpricing \-
c) Peak loadpricing
d) factors affecting cost at microlevel (14)

lM 6ll4lzars (1) [Contd....

,
134
' *Law ofinoreasingreturns and taw-of constantreturns a"re ternp+rary., Phases
v a)
@
ofthe law of di-rninishing reftIro'". Explain (7)
b) Define econoncies of scale (1)
@ What is aprodue.ttm ftrnoficn?Holar, &es,alongru*,podnetien firffiion diftr
from short rrn production fimstian. (I4)
,.-',
Section-B /
fr a) ' Describe the various
methods of measure of national incoriQHorp.Q a _.-
\-' method choosed for measuring national income? ,/
TYIO)
b) fronr the data pertaining to the Indian economy given tAo{"a{rfiute
1) GNP at factor cost
ii) In{P at factor eost
iii) Net Domestic product at factor cost
19 Net dornestic product at market Fices

1M 6114 a)
 135

RollNo. w)3 Total No of Pages: p

$ 1\il6tL4
F{
F{ M. B. A. I Sem. (MainlBack) Exam., Jan. 2016
\o M-104 A Managerial Economics
r{
=

Time: 3 Hours Maximum Marks: 70

Min. Passing Marks: 28
Instructions to C andidate s :
(i) The question paper is divided in two sections.
(ii) There are sections A & B. Section A contains 6 questions out of
which the candidate is required to attempt any 4 questions.
Section B contains short case study / application basOd question
which is compulsory.
(iii) All questions carry equal marlcs.
1. NIL 2. NIL iy!!er MORE

ffi&{_Ls_r,&.#k"$

y (a) Define manageriSl economics. Discuss the significance of

economics.
managerial

t8l
(b) Explain the relationship of managerial economics with statistics. t6l

Q.2 (a) Explain the alternative objectives of a firm. t6l

(b) Describe briefly the incremental principle, discounting and equi-marginal
principles. t8l
(a) Define demand. Discuss the various determinants of demand. Lll
(b) Write short notes on- U)
(i) Price elasticity of demand
(ii) Income elasticity of demand

[1M6114] Page 1 ofZ 1282o1

,ra
 136

Q.4 (a) Discuss skimming pricing and penetration pricing with suitable example. t7l
(b) Define cost function. Discuss the various types of costs. t7]
Q.s (a) Explain the law of variable proportions with the help of graph. t71
(b) Write short notes on- t71
(i) Production function
(ii) Marginal utility
Q.6 (a) Describe the features of perfect competition market.
tsl
(b) Discuss the concept of National Income
tsl
(c) What are the determinants of short-term profit?
141

SECTION.B i

Q.7 The following figures are extracted from the books of a manufacturing concern for the
year 2012-2013.

Direct materiall Rs.205000

Direct Labour Rs. 75000 iruNEE]'turoRr
Fixed Overheads Rs. 60000 9829959s36
[AL'uVA.1./ES
Variable Overheads Rs. 100000
Sale Rs.500000

(a) Calculate the break-even point.

141

(b) What will be the effect on BEP of an increase of lTVo infixed expenses?
tsl
(c) What will be the effect on BEP of an increase of l}Vo invariable expenses?
tsI
,

MORE EDUCATICIN puneet More - 773171536g

MBA Coaching Classes

r Business Mathematlcs
r Accounting for Management
o Managerial Econamics
[1M6114] J28.2ol
I-ive & Recorded Batch in Rajasthan
 137
NdrT'T X >< 6 [Total ftlo. of Pages :

I+
r{
F{ M.B.A. I Semester (Main/Back) Examination, Dec. - 2016
\o
M-104 A Managerial Economics
F(
=
Time : 3 Hours Maximum Marks :70
NIin. Passing Nlarks z 28
Instructions to Candidates:
i) The question paper is divided in two sections.
ii) There are sections A & B. Section A contains 6 questions out of which th,e
candidate is required to attempt ony 4 questions'. Section B contains short
case stu.dy/application base I question which is compulsory.
iii) All question qre cat rying equal marlcs.
Section - A
l. o'Managerial egonomics can be viewed as an application of that part of
fiiacroeconomics tha*. focJses on risk, demand" production, cost, pricing and market
structure." Explain role and responsibility of a managerial economist, in light of the
. sPtement.

ar/^) Explain briefly income elasticity of demand and promotional elasticit) ot

\-/- Demand.
b) State the law of,demand. What are its exception

{8. How a dominant firm determine output under oligopoly with a left over for small firms
under imperfectibn collusion? Give names of five oligopolist {irms in India.
4. Exptain concept of double counting which i, uroid.d while calculating National
Income of any country. How GNR NND, N* P, D, are calculated?
].- "Bundling" has emerged'as an important aspect of 'consumer pricing'. Discttss
this with suitable examples.
.tr Write short notes on (any four) \-* (3"$ x 4-14)
o a) Opportunity cost.
b) Consumer Pricing Index.
{c) Break EvenAnalysis.
c- d) Elasticify of supply.

I Loss Leader Pricing.

0 Kinked Demand Curve.
1M6ll4 lzorc (1) IContd....
 138
Section - B
7. Case Study
Gagan P\4. Ltd. Was established in 1995. The company started manufacturing of
Water Geyser with a brand name of 'Ganga'. During initial l0 years, the company
made good profits. But, its profits gradually declined due to competition from
national brands. The promoters of the company had a committed team of workers
who were constantly working on Research and Development. Finally, they came
out in the year 2006, with an innovative product, named Maha Ganga which runs
even at very low voltage and consumes less electricity. Thus, the company is
monopoly manufacturer of 'Maha Ganga'. The company is currently supplying its
products in geographically separated markets of Punjab and '11' Haryana. The
company is currently charging the same price in Punjab and Haryana. The Chief
Economist of the company has informed the top rnanagement that price elasticity
of demand at currently-charged price is 3 in Punjab and 5 in Haryana. The top
management is planning to charge two different prices in Punjab and Haryana. In
order to make more profits.
Questions:
1. Will it
be possible for the company to charge two different prices in Punjab and
Haryana? Ifyes, under what conditions? Explain.
2. Will it be profitable for the company to charge two different prices in Punjab and
}laryana? Explain.
3. Given the volume of total productior{, supply will be transferred from Punjab to
Hqryana or from Haryanato Punjab. ,Mhy?
(Assume that transport cost for supplying the product m punjab and Haryana is
the same for the company.)

1M6tl4 (2)
, VIDEO AVAILABLE FOR
I
WWW.MOREEDUCATION.IN ALL PRACTICAL & THEORY SUBJECT RTU MBA CLASSES SINCE 2005
139

Ror wIWUW{uo
t-
Total No of Pages, p
LM6LL4
M. B. A. I Sem. (Main/Back) Exam., I)ec. 2017
M-104 A Managerial Economics

Tim0: 3 Hours Maximum Marks: 7A

Min. Passing Marks: 28
Instructions to C andidate s :
(i) The questio,n paper is divided in two sections.
(ii) There are sections A & B. Section A contains 6 questions out of which
the candidate is required to attempt any 4 questions. Section B
contains short case study / application based 7 question, which is
ompulsory.
(iii) Alt questions carry equal marks.

SE,CTTON.A

MORE EDUCATION 9829959536

"Managerial Economics bridges the gap between economlc theory and business
practi ce". Explain with examples u4l

Q.2 Define the concept of marginal principle. Discuss the important a:ea of business
decisions in which marginal principle can be applied. U +7 -141

istinguish between: [5+5+ 4=141

(a) Demand function and demand schedule

,'
{
g4ndividual nand and market demand
demand r

-- Demand for normal goods and inferior goods

6

[1M 61,1,41 Page L ofZ [ 3o4ol

JAIPUR-VIDHYADHAR NAGAR 418 MANSAROVAR PLAZA PRATAP NAGAR

 VIDEO AVAILABLE FOR
WWW.MOREEDUCATION.IN ALL PRACTICAL & THEORY SUBJECT RTU MBA CLASSES SINCE 2005
140

the relationship between marginal cost, average cost and total cost assuming a
YExplun
/ short run non-linear cost function. . tl4l
Distinguish hetrueen laws of return to variable proportion and laws of return to spale.
$.5
Explain the fatior, which cause increasing returns to scale. what are the
the operation of the law'of diminishing return?

Q.6 What is meant by price discrimination? State the necessary conditions

discrimination.

SECTION.B
Case Studv

Define various concepts of National Income. How National income can be

measured?
.-.,-e

-
tt41

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i:- . .,r r'.

[1M61,1,41 Page 2 of 2 [ 30401

JAIPUR-VIDHYADHAR NAGAR 418 MANSAROVAR PLAZA PRATAP NAGAR

 141
btal No. of Pages :

$
F{
F{ M.B.A I Semester (Main & Back) Examination, Dec. - 2018
\o M-104 Managerial Economics

F( xd6?-0
= \g N\\E
Time:3Hours 'l Maximum Marks 3 70
Min. Passing Marks z 28
Instructions to Cundidates:
I. The question paper is divided in two sections.
2. There are sections A&8. Section A contains 6 questions out of which the
candidate is required to attempt any 4 questions. Section B contains short
' I
case study/application base question which is compulsory.
3. All questions are carrying equal marks.

Section A

1. Examine the nature of managerial economics. What are the characteristics of

Baumol's model ofsales tevenue marimization? Q+7)
-2. "The amount of demand increases with a fall in the price and diminishes with a
rise in the price". Discuss. Differentiate between contraction and extension in
demand and increase and decrease in demand. (4+5+5)

v3. What do you mean by elasticity of dernand? Describe the factors determining
elasticity of demand. Distinguish between price effect and price elasticity of
demand. g+6+4)
4. i. Distinguishamong: s

a. Opportunity cost and social cost (3.5)

b. Sunk cost and book cost (3.5)

ii. Writeinbriefabout:
a. Price skimming (3.5)
' b. Consumer surplus (3.5)

f . a. Explain production function. Write about law of returns to scale. (7)

b. Discuss Oligopoly market and write about price and output determination
under kinked demand curvp. Q)
1M6114 t2018 (1) lContd....
 6. Discuss profit concept fo. gq economist. Explain determinants of short term
142
and long term profits. (7)
b. 'write
about consumer pricing Index. (7)

Section B

(1 * 14=14)
7. Solve the case and find out break-even point.

Variable cost per unit Rs. 10

Selling price per unit Rs. 15

Fixed expenses Rs.40,000

What will be selling price per unit if bredk-even point is brought down to 5,000
units?

rM6n4 a)