MASTER OF BUSINESS ADMINISTRATION

MB0042 MANAGERIAL ECONOMICS - 4 CREDITS

ASSIGNMENT SET - 1 (60 MARKS)

1. Explain the importance of managerial economics.

The discipline of managerial economics deals with aspects of economics and tools of analysis, which are employed by business enterprises for decision-making. Business and industrial enterprises have to undertake varied decisions that entail managerial issues and decisions. Decision-making can be delineated as a process where a particular course of action is chosen from a number of alternatives. This demands an unclouded perception of the technical and environmental conditions, which are integral to decision making. The decision maker must possess a thorough knowledge of aspects of economic theory and its tools of analysis. Importance of managerial economics Business and industrial enterprises aim at earning maximum proceeds. In order to achieve this objective, a managerial executive has to take recourse in decision-making, which is the process of selecting a specified course of action from a number of alternatives. A sound decision requires fair knowledge of the aspects of economic theory and the tools of economic analysis, which are directly involved in the process of decision-making. Since managerial economics is concerned with such aspects and tools of analysis, it is pertinent to the decision-making process. Spencer and Siegelman have described the importance of managerial economics in a business and industrial enterprise as follows: 1. Accommodating traditional theoretical concepts to the actual business behaviour and

conditions: Managerial economics amalgamates tools, techniques, models and theories of traditional economics with actual business practices and with the environment in which a firm has to operate. According to Edwin Mansfield, Managerial Economics attempts to bridge the gap between purely analytical problems that intrigue many economic theories and the problems of policies that management must face. 2. Estimating economic relationships: Managerial economics estimates economic relationships between different business factors such as income, elasticity of demand, cost volume, profit analysis etc. 3. Predicting relevant economic quantities: Managerial economics assists the management in predicting various economic quantities such as cost, profit, demand, capital, production, price etc. As a business manager has to function in an environment of uncertainty, it is imperative to anticipate the future working environment in terms of the said quantities. 4. Understanding significant external forces: The management has to identify all the important factors that influence a firm. These factors can broadly be divided into two categories. Managerial economics plays an important role by assisting management in understanding these factors. External factors: A firm cannot exercise any control over these factors. The plans, policies and programmes of the firm should be formulated in the light of these factors. Significant external factors impinging on the decision-making process of a firm are economic system of the country, business cycles, fluctuations in national income and national production, industrial policy of the government, trade and fiscal policy of the government, taxation policy, licensing policy, trends in foreign trade of the country, general industrial relation in the country and so on. Internal factors: These factors fall under the control of a firm. These factors are associated with business operation. Knowledge of these factors aids the management in making sound business decisions. 5. Basis of business policies: Managerial economics is the founding principle of business policies. Business policies are prepared based on studies and findings of managerial economics, which cautions the management against potential upheavals in national as well as international economy. Thus, managerial economics is helpful to the management in its decision-making process.

2. Discuss the determinants of price elasticity of demand.

The determinants of the price elasticity are : 1. Availability of close substitutes

Goods with close substitutes tend to have more elastic demand because it is easier for consumers to switch from that good to other. For example, butter and margarine are easily substitutable. By contrast, because eggs are a food without a close substitute, the demand for eggs is less elastic than the demand for butter. 2. Necessities versus Luxuries Necessities tend to have inelastic demands, whereas luxuries have elastic demands. Of course, whether a good is a necessity or a luxury depends not on the intrinsic properties of the good but on the preferences of the buyer. For avid sailors with little concern over their health, sailboats might be a necessity with inelastic demand and doctor visits a luxury with elastic demand. 3. Definition of the Market The elasticity of demand in any market depends on how we draw the boundaries of the market. Narrowly defined markets tend to have more elastic demand than broadly defined markets because it is easier to find close substitutes for narrowly defined goods. For example, food, a broad category, has a fairly inelastic demand because there are no good substitutes for food. Ice cream, a narrower category, has a more elastic demand. 4. Time Horizon : Goods tend to have more elastic demand over longer time horizons. When the price of gasoline rises, the quantity of gasoline demanded falls only slightly in the first few months. Over time, however, people buy more fuel efficient cars, switch to public transportation, and move closer to where they work. Within several years, the quantity of gasoline demanded falls substantially. Economists compute the price elasticity of demand as the percentage change in the quantity demanded divided by the percentage change in the price

3. Explain trend projection method of demand forecasting with illustration.

Trend projection method is a classical method of business forecasting. This method is essentially concerned with the study of movement of variable through time. The use of this method requires a long and reliable time series data. The trend projection method is used under the assumption that the factors responsible for the past trends in variables to be projected (e.g. sales and demand) will continue to play their part in future in the same manner and to the same extend as they did in the past in determining the magnitude and direction of the variable.

There are three (3) techniques of trend projection based on time series data.

1. Graphical Method: - under this method, annual sales data is plotted on a graph paper and a line is drawn
through the plotted points. Then a free hand line is so drawn that the total distance between the line and the point is minimum. Although this method is very simple and least expensive, the projections made through this method are not very reliable. The reason is that the extension of the trend line involves subjectivity and personal bias of the analysis.

Sale

Years/TrendProjection

2. Fitting Trend Equation: Least square method: - Fitting trend equation is a formal technique of projecting
the trend in demand. Under this method, a trend line (or curve) is fitted to the time series data with the aid of statistical techniques. The form of the trend equation that can be fitted to the time series data is determined either by plotting the sales data or by trying different forms of trend equations for the best fit.
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When plotted, a time series date may show various trends. The most common types of trend equation are

1) Linear 2) exponential trends

Linear Trend: - When a time series data reveals a rising trend in sales than a straight-line trend equation of the following form is fitted. (S = A + BT ; Where S = annual sales , T = Time (in year) , A & B are constant. The parameter b given the measure of annual increase in sales)

Exponential trend:- When sales ( or any dependent variable) have increased over the past years at an increasing rate or at a constant percentage rate, than the appropriate trend equation to be used is an exponential trend equation of any of the following type ( Y = aebt , Or its semi logarithmic form -> Log y = = log a + bt; This form of trend equation is used when growth rate is constant.)

3. Double log trend equation of equation

Y = aTB Or its double logarithmic form Log y = log a + b log t This form of trend equation is used when growth rate is increasing.

Limitation The first limitations of this method arise out of the assumption that the past rate of change in the dependent variable will persist in the future too. Therefore, the forecast based on this method may be considered to be reliable only for the period during which this assumption holds. Second, this method cannot be used for short-term estimates. Also it cannot be used where trend is cyclical with sharp turning points of trough and perks. Box Jenkins Method: - This method of forecasting is used only for short term predictions. Besides, this method is suitable for forecasting demand with only stationary time series sales data. Stationary time series data is one, which does not reveal long term trend. In other words, Box-Jenkins technique can be used only on those cases in which time-series analysis depicts monthly or seasonal variation recurring with some degree of regularity.

4. Explain factors determining elasticity of demand.

Elasticity of demand is generally defined as the responsiveness or sensitiveness of demand to a given change in the price of a commodity. It refers to the capacity of demand either to stretch or shrink to a given change in price. Elasticity of demand indicates a ratio of relative changes in two quantities.ie, price and demand. According to prof. Boulding. Elasticity of demand measures the responsiveness of demand to changes in price 1 In the words of Marshall, The elasticity (or responsiveness) of demand in a market is great or small according to the amount demanded much or little for a given fall in price, and diminishes much or little for a given rise in price 2. Determinants of Price Elasticity of Demand The elasticity of demand depends on several factors of which the following are some of the important ones. 1. Nature of the Commodity: Commodities coming under the category of necessaries and essentials tend to be inelastic because people buy them whatever may be the price. For example, rice, wheat, sugar, milk, vegetables etc. on the other hand, for comforts and luxuries, demand tends to be elastic e.g., TV sets, refrigerators etc. 2. Existence of Substitutes: Substitute goods are those that are considered to be economically interchangeable by buyers. If a commodity has no substitutes in the market, demand tends to be inelastic because people have to pay higher price for such articles. For example. Salt, onions, garlic, ginger etc. In case of commodities having different substitutes, demand tends to be elastic. For example, blades, tooth pastes, soaps etc.

3. Number of uses for the commodity: Single-use goods are those items which can be used for only one purpose and multiple-use goods can be used for a variety of purposes. If a commodity has only one use (singe use product) then demand tends to be inelastic because people have to pay more prices if they have to use that product for only one use. For example, all kinds of. eatables, seeds, fertilizers, pesticides etc. On the contrary, commodities having several uses, [multiple-use-products] demand tends to be elastic. For example, coal, electricity, steel etc. 4. Durability and reparability of a commodity: Durable goods are those which can be used for a long period of time. Demand tends to be elastic in case of durable and repairable goods because people do not buy them frequently. For example, table, chair, vessels etc. On the other hand, for perishable and non-repairable goods, demand tends to be inelastic e.g., milk, vegetables, electronic watches etc. 5. Possibility of postponing the use of a commodity: In case there is no possibility to postpone the use of a commodity to future, the demand tends to be inelastic because people have to buy them irrespective of their prices. For example, medicines. If there is possibility to postpone the use of a commodity, demand tends to be elastic e.g., buying a TV set, motor cycle, washing machine or a car etc. 6. Level of Income of the people: Generally speaking, demand will be relatively inelastic in case of rich people because any change in market price will not alter and affect their purchase plans. On the contrary, demand tends to be elastic in case of poor. 7. Range of Prices: There are certain goods or products like imported cars, computers, refrigerators, TV etc, which are costly in nature. Similarly, a few other goods like nails; needles etc. are low priced goods. In all these cases, a small fall or rise in prices will have insignificant effect on their demand. Hence, demand for them is inelastic in nature. However, commodities having normal prices are elastic in nature. 8. Proportion of the expenditure on a commodity: When the amount of money spent on buying a product is either too small or too big, in that case demand tends to be inelastic. For example, salt, newspaper or a site or house. On the other hand, the amount of money spent is moderate; demand in that case tends to be elastic. For example, vegetables and fruits, cloths, provision items etc. 9. Habits: When people are habituated for the use of a commodity, they do not care for price changes over a certain range. For example, in case of smoking, drinking, use of tobacco etc. In that case, demand tends to be inelastic. If people are not habituated for the use of any products, then demand generally tends to be elastic. 10. Period of time: Price elasticity of demand varies with the length of the time period. Generally speaking, in the short period, demand is inelastic because consumption habits of the people, customs and traditions etc. do not change. On the contrary, demand tends to be elastic in the long period where there is possibility of all kinds of changes. 11. Level of Knowledge: Demand in case of enlightened customer would be elastic and in case of ignorant customers, it would be inelastic. 12. Existence of complementary goods: Goods or services whose demands are interrelated so that an increase in the price of one of the products results in a fall in the demand for the other. Goods which are jointly demanded are inelastic in nature. For example, pen and ink, vehicles and petrol, shoes and socks etc have inelastic demand for this reason. If a product does not have complements, in that case demand tends to be elastic. For example, biscuits, chocolates, ice creams etc. In this case the use of a product is not linked to any other products. 13. Purchase frequency of a product: If the frequency of purchase is very high, the demand tends to be inelastic. For e.g., coffee, tea, milk, match box etc. on the other hand, if people buy a product occasionally, demand tends to be elastic. For example, durable goods like radio, tape recorders, refrigerators etc.

Thus, the demand for a product is elastic or inelastic will depend on a number of factors.

5. Explain how a product would reach equilibrium position with the help of iso-quants and iso-cost curve.

ISO-Quants and ISO-Costs The prime concern of a firm is to workout the cheapest factor combinations to produce a given quantity of output. There are a large number of alternative combinations of factor inputs which can produce a given quantity of output for a given amount of investment. Hence, a producer has to select the most economical combination out of them. Iso-product curve is a technique developed in recent years to show the equilibrium of a producer with two variable factor inputs. It is a parallel concept to the indifference curve in the theory of consumption.

Meaning and Definitions The term Iso Quant has been derived from Iso meaning equal and Quant meaning quantity. Hence, Iso Quant is also called Equal Product Curve or Product Indifference Curve or Constant Product Curve. An Iso product curve represents all the possible combinations of two factor inputs which are capable of producing the same level of output. It may be defined as a curve which shows the different combinations of the two inputs producing the same level of output . Each Iso Quant curve represents only one particular level of output. If there are different IsoQuant curves, they represent different levels of output. Any point on an Iso Quant curve represents same level of output. Since each point indicates equal level of output, the producer becomes indifferent with respect to any one of the combinations. Equal Product Combination Combinations A B C D E Factor X (Labor) 12 8 5 3 2 Factor Y Capital 1 2 3 4 5 Total Output in units 100 100 100 100 100

In the above schedule, all the five factor combinations will produce the equal level of output, i.e.100 units. Hence, the producer is indifferent with respect to any one of the combinations mentioned above. Graphic Representation In the diagram, if we join points ABCDE (which represents different combinations of factor x and y) we get an Iso-quant curve IQ. This curve represents 100 units of output that may be produced by employing any one of the combinations of two factor inputs mentioned above. It is to be noted that an Iso-Product Curve shows the

exact physical units of output that can be produced by alternative combinations of two factor inputs. Hence, absolute measurement of output is possible. Iso Quant Map A catalogue of different combinations of inputs with different levels of output can be indicated in a graph which is called equal product map or Iso-quant map. In other words, a number of Iso Quants representing different amount of out put are known as Iso-quant map.

Marginal Rate of Technical Substitution (MRTS) It may be defined as the rate at which a factor of production can be substituted for another at the margin without affecting any change in the quantity of output. For example, MRTS of X for Y is the number of units of factor Y that can be replaced by one unit of factor X quantity of output remaining the same. Combinations A B C D E Factor X 12 8 5 3 2 Factor Y 1 2 3 4 5 MRTS of x for y Nil 4:1 3:1 2:1 1:1

In the above example, we can notice that in the second combination the producer is substituting 4 units of X for 1 unit of Y. Hence, in this case MRTS of Y for X is 4:1. Generally speaking, the MRTS will be diminishing. In the above table, we can observe that as the quantity of factor Y is increased relative to the quantity of X, the number of units of X that will be required to be replaced by one unit of factor Y will diminish, quantity of output remaining the same. This is known as the law of Diminishing Marginal Rate of Technical Substitution (DMRTS). ISO-Cost Line or Curve It is a parallel concept to the budget or price line of the consumer. It indicates the different combinations of the two inputs which the firm can purchase at given prices with a given outlay. It shows two things (a) prices of two inputs (b) total outlay of the firm. Each Iso-cost line will show various combinations of two factors which can be purchased with a given amount of money at the given price of each input. We can draw the Iso-cost line on the basis of an imaginary example. Let us suppose that a producer wants to spend Rs. 3,000 to purchase factor X and Y. If the price of X per unit Rs. 100 he can purchase 30 units of X. Similarly if the price of factor Y is Rs. 50 then he can purchase 60 units of Y. When 30 units of factor X are represented on OY axis and 60 units of factor Y are represented on OX- axis, we get two points A & B. If we join these two points A and B, then we get the Iso-Cost line AB. This line represents the different combinations of factor X and Y that can be purchased with Rs. 3,000.

The Iso-Cost line will shift to the right if the producer increase his outlay from Rs. 3,000 to Rs. 4,000. On the contrary, if his outlay decreases to Rs. 2,000, there will be a backward shift in the position of Iso-cost line. The slope of the Iso-cost line represents the ratio of the price of a unit of factor X to the price of a unit of factor Y. In case, the price of any one of them changes there would be a corresponding change in the slope and position of Iso-cost line.

PRODUCERS EQUILIBRIUM (Optimum factor combination or least cost combination). The optimal combination of factor inputs may help in either minimizing cost for a given level of output or maximizing output with a given amount of investment expenditure. In order to explain producers equilibrium, we have to integrate Iso-quant curve with that of Iso-cost line. Iso-product curve represent different alternative possible combinations of two factor inputs with the help of which a given level of output can be produced. On the other hand, Iso-cost line shows the total outlay of the producer and the prices of factors of production. The intention of the producer is to maximize his profits. Profits can be maximized when he is producing maximum output with minimum production cost. Hence, the producer selects the least cost combination of the factor inputs. Maximum output with minimum cost is possible only when he reaches the position of equilibrium. The position of equilibrium is indicated at the point where Iso-Quant curve is tangential to IsoCost line. The following diagram explains how the producer reaches the position of equilibrium.

It is quite clear from the diagram that the producer will reach the position of equilibrium at the point E where the Iso-quant curve IQ and Iso-cost line AB is tangent to each other. With a given total out lay of Rs. 5,000 the producer will be producing the highest output, i.e. 500 units by employing 25 units of factors X and 50 units of factor Y. (assuming Rs. 2,500 each is spent on X and Y) The price of one unit of factor X is Rs.100-00 and that of Y is Rs. 50-00.. Rs.100 x 25 units of 2500 00 and Rs. 50 x 50 units of Y = 2500 00. He will not reach the position of equilibrium either at the point E1 and E2 because they are on a higher Iso-cost line. Similarly, he cannot move to the left side of E, because they are on a lower Iso-Cost line and he will not be able to produce 500 units of output by any combinations which lie to the left of E. Thus, the point at which the Iso-Quant is tangent to the Iso-Cost line represents the minimum cost or optimum factor combination for producing a given level of output. At this point, MRTS between the two points is equal to the ratio between the prices of the inputs. d ISO-Costs The prime concern of a firm is to workout the cheapest factor combinations to produce a given quantity of output. There are a large number of alternative combinations of factor inputs which can produce a given quantity of output for a given amount of investment. Hence, a producer has to select the most economical combination out of them. Iso-product curve is a technique developed in recent years to show the equilibrium of a producer with two variable factor inputs. It is a parallel concept to the indifference curve in the theory of consumption. Meaning and Definitions The term Iso Quant has been derived from Iso meaning equal and Quant meaning quantity. Hence, Iso Quant is also called Equal Product Curve or Product Indifference Curve or Constant Product Curve. An Iso product curve represents all the possible combinations of two factor inputs which are capable of producing the same level of output. It may be defined as a curve which shows the different combinations of the two inputs producing the same level of output . Each Iso Quant curve

represents only one particular level of output. If there are different IsoQuant curves, they represent different levels of output. Any point on an Iso Quant curve represents same level of output. Since each point indicates equal level of output, the producer becomes indifferent with respect to any one of the combinations. Equal Product Combination Combinations Factor X (Labor) Factor Y Capital Total Output in units A 12 1 100 B 8 2 100 C 5 3 100 D 3 4 100 E 2 5 100 In the above schedule, all the five factor combinations will produce the equal level of output, i.e.100 units. Hence, the producer is indifferent with respect to any one of the combinations mentioned above. Graphic Representation In the diagram, if we join points ABCDE (which represents different combinations of factor x and y) we get an Iso-quant curve IQ. This curve represents 100 units of output that may be produced by employing any one of the combinations of two factor inputs mentioned above. It is to be noted that an IsoProduct Curve shows the exact physical units of output that can be produced by alternative combinations of two factor inputs. Hence, absolute measurement of output is possible. Iso Quant Map A catalogue of different combinations of inputs with different levels of output can be indicated in a graph which is called equal product map or Iso-quant map. In other words, a number of Iso Quants representing different amount of out put are known as Iso-quant map. Marginal Rate of Technical Substitution (MRTS) It may be defined as the rate at which a factor of production can be substituted for another at the margin without affecting any change in the quantity of output. For example, MRTS of X for Y is the number of units of factor Y that can be replaced by one unit of factor X quantity of output remaining the same. Combinations Factor X Factor Y MRTS of x for y A 12 1 Nil B 8 2 4:1 C 5 3 3:1 D 3 4 2:1 E 2 5 1:1 In the above example, we can notice that in the second combination the producer is substituting 4 units of X for 1 unit of Y. Hence, in this case MRTS of Y for X is 4:1. Generally speaking, the MRTS will be diminishing. In the above table, we can observe that as the quantity of factor Y is increased relative to the quantity of X, the number of units of X that will be required to be replaced by one unit of factor Y will diminish, quantity of output remaining the same. This is known as the law of Diminishing Marginal Rate of Technical Substitution (DMRTS). ISO-Cost Line or Curve It is a parallel concept to the budget or price line of the consumer. It indicates the different combinations of the two inputs which the firm can purchase at given prices with a given outlay. It shows two things (a) prices of two inputs (b) total outlay of the firm. Each Iso-cost line will show various combinations of two factors which can be purchased with a given amount of money at the given price of each input. We can draw the Iso-cost line on the basis of an imaginary example. Let us suppose that a producer wants to spend Rs. 3,000 to purchase factor X and Y. If the price of X per unit Rs. 100 he can purchase 30 units of X. Similarly if the price of factor Y is Rs. 50 then he can purchase 60 units of Y. When 30 units of factor X are represented on OY axis and 60 units of factor Y are represented on OX- axis, we get two points A & B. If we join these two points A and B, then we get the Iso-Cost line AB. This line represents the different combinations of factor X and Y that can be purchased with Rs. 3,000. The Iso-Cost line will shift to the right if the producer increase his outlay from Rs. 3,000 to Rs. 4,000. On the contrary, if his outlay decreases to Rs. 2,000, there will be a backward shift in the position of Iso-cost line. The slope of the Iso-cost line represents the ratio of the price of a unit of factor X to the price of a unit of factor Y. In case, the price of any one of them changes there would be a corresponding change in the slope and position of Iso-cost line. PRODUCERS EQUILIBRIUM (Optimum factor combination or least cost combination). The optimal combination of factor inputs may help in either minimizing cost for a given level of output or maximizing output with a given amount of investment expenditure. In order to explain producers equilibrium, we have to integrate Iso-quant curve with that of Iso-cost line. Iso-product curve represent different alternative possible combinations of two factor inputs with the help of which a given level of output can be produced. On the other hand, Iso-cost line shows the total outlay of the producer and the prices of factors of production. The intention of the producer is to maximize his profits. Profits can be maximized when he is producing maximum output with minimum production cost. Hence, the producer selects the least cost combination of the factor inputs. Maximum output with minimum cost is possible only when he reaches the position of equilibrium. The position of equilibrium is indicated at the point where Iso-Quant curve is tangential to Iso-Cost line. The following diagram explains how the producer reaches the position of equilibrium. It is quite clear from the diagram that the producer will reach the position of equilibrium at the point E where the Iso-quant curve IQ and Iso-cost line AB is tangent to each other. With a given total out lay of Rs. 5,000 the producer will be producing the highest output, i.e. 500 units by employing 25 units of factors X and 50 units of factor Y. (assuming Rs. 2,500 each is spent on X and Y) The price of one unit of factor X is Rs.100-00 and that

of Y is Rs. 50-00.. Rs.100 x 25 units of 2500 00 and Rs. 50 x 50 units of Y = 2500 00. He will not reach the position of equilibrium either at the point E1 and E2 because they are on a higher Iso-cost line. Similarly, he cannot move to the left side of E, because they are on a lower Iso-Cost line and he will not be able to produce 500 units of output by any combinations which lie to the left of E. Thus, the point at which the Iso-Quant is tangent to the Iso-Cost line represents the minimum cost or optimum factor combination for producing a given level of output. At this point, MRTS between the two points is equal to the ratio between the prices of the inputs.

Q. Explain cost output relationship with reference to a. Total fixed cost and output b. Total variable cost and output

Answer: A. Total fixed cost and output: TFC refers to total money expenses incurred on fixed inputs like plant, machinery, tools & equipments in the short run. Total fixed cost corresponds to the fixed inputs in the short run production function. TFC remains the same at all levels of output in the short run. It is the same when output is nil. It indicates that whatever may be the quantity of output, whether 1 to 6 units, TFC remains constant. The TFC curve is horizontal and parallel to OX-axis, showing that it is constant regardless of output per unit of time. TFC starts from a point on Y-axis indicating that the total fixed cost will be incurred even if the output is zero. In our example, Rs 360=00 is TFC. It is obtained by summing up the product or quantities of the fixed factors multiplied by their respective unit price.

B. Total variable cost and output: TVC refers to total money expenses incurred on the variable factor inputs like raw materials, power, fuel, water, transport and communication etc, in the short run. Total variable cost corresponds to variable inputs in the short run production function. It is obtained by summing up the production of quantities of variable inputs multiplied by their prices. The formula to calculate TVC is as follows. TVC = TC-TFC. TVC = f (Q) i.e. TVC is an increasing function of output. In other words TVC varies with output. It is nil, if there is no production. Thus, it is a direct cost of output. TVC rises sharply in the beginning, gradually in the middle and sharply at the end in accordance with the law of variable proportion. The law of variable proportion explains that in the beginning to obtain a given quantity of output, relative variation in variable factors-needed are in less proportion, but after a point when the diminishing returns operate, variable factors are to be employed in a larger proportion to increase the same level of output. TVC curve slope upwards from left to right. TVC curve rises as output is expanded. When output is Zero, TVC also will be zero. Hence, the TVC curve starts from the origin.

1. Write a note on Marris growth maximising model. 2. Explain in brief the relationship between TR, AR and MR under perfect market conditions. 3. What is perfect competition? Explain the equilibrium of a firm under perfect competition in the long run. 4. What is oligopoly? Explain the features of oligopoly market. 5. Explain wholesale price index with suitable illustration. 6. What is investment function; discuss the various factors that determine the investment function.