BBA Microeconomics for Business

State the scope of microeconomics.

Justify the following statements: (a) The cost of something is what you give up to get it; (b) Trade can make every one better off.

How do firms use the concept and principles of microeconomics in business decision making? Explain.

Write any two fundamental economic principles.

What is microeconomics. Explain its uses in business operations.

Describe the scope of business economics.

Define business economics.

Explain the uses of microeconomics in business decision-making.

Read the following case carefully and answer the questions that follow:

Vegetable prices have continued to go up in the Kathmandu Valley despite rising in supply from various parts of the country. The Kalimati vegetable market, the largest vegetable market in the country, is currently receiving around 1000 tons of vegetables per day. Last week the daily supply stood at around 600 tons. Despite a 50 percent decline in vegetable supply, prices of most of the vegetables are currently going up exerting pressure on the household budget. A snap survey conducted at Kalimati vegetable market showed that prices of vegetables had gone up in the range of 10 percent to 100 percent. Prices of all kinds of vegetables, like cauliflower, radish, soybean, tomato, pumpkin, and French bean etc. have gone up.

According to the information of the Kalimati Fruits and Vegetable Market Development Board, said it is a normal phenomenon for vegetable prices to increase during monsoon, as rain causes damage to the green produce. Yet the rate of price hike is higher this year because of floods and heavy rain that damaged or destroyed vegetables in various parts of the country. Also, road blockades triggered by landslides, which have disrupted supplies, have played a role in raising prices. Many retailers are now taking undue advantage of the situation to further jack up prices. This, however, should not mean all retailers are profiteering, as those who have received substandard vegetables, like those spoiled by rain or other adverse weather conditions, are being forced to increase retail prices to cover up losses. The valley generally gets most of its vegetable supplies from Kavrepalanchowk, Dhading, Makwanpur, Nuwakot and Chitwan. Although these places are not much affected... [abundant] rain has caused some damage to vegetables grown in these areas... [price] hike. The Ministry of Agricultural Development... said vegetables worth Rs 2.96 billion were destroyed in 31 districts by floods triggered by torrential rain that continues in last...

Define advertisement elasticity of demand.

Suppose market demand and supply for mango are\( Q_d = 150 - 10P \) and \( Q_s = 10P - 50 \) respectively where P is the price per kg. What is the equilibrium price of mango?

Consider the following demand schedule:

Find the cross elasticity of demand between tea and coffee.

Read the following case carefully and answer the questions that follow:

Clearing market refers to such market in which there is neither the situation of excess nor the situation of surplus. It is a state where market demand is equal to market supply. Unlike to that of clearing market, a non-clearing market arises when economic agents react to both price signals and quantity signals. In particular, economic agents sometimes deliberately create a disequilibrium situation in order to extract benefits from the persistence of a surplus or a shortage of the commodity or service that they sell or buy. One of the main insights of non-clearing markets theory is that disequilibrium in one market can create desirable spillover effects in a related market.

For example, ticket prices for music concerts by superstars, such as Rajesh Payal Rai or Prakash Saput, are often deliberately set below the equilibrium price to create a shortage (i.e. excess demand) for tickets. Long lines form in front of ticket booths long before tickets go on sale, and all available tickets are quickly sold out as soon as they go on sale due to limited seat. The news media report on the long lines to get tickets and interview some of the people camped outside ticket booths days before the tickets go on sale, fans talk about the hot concert coming up, and an aura of anticipation and success is created. Promoters play this price game in the expectation that all the "hype" about the concert and the free publicity that it gets will lead to much greater sales of the star's recordings, and that these spillovers will more than make up for the loss of revenue by pricing concert tickets below the equilibrium level.

The same occurs in pricing popular MOMO HUB or PIZZA HUTS. Lines in front of the new restaurant and 'word of mouth' are the best and cheapest forms of advertising that the restaurant could have. Despite the limited space to welcome all customers, people believe that it is difficult to get into the restaurant due to high goodwill. As a result, such restaurant owners can offer high prices to deliver at home to grab more profit.

Questions:

a. Identify the factors that cause disequilibrium in a market economy. What are the economic implications of market disequilibrium?

b. Why do firms motivate to fix the price at below equilibrium price? Explain.

c. What will be the effect of this type of pricing strategy in consumers' welfare?

d. What suggestions would you provide the government to regulate the firms in restricting illegal pricing practices?

Demand is a flow of concept. Why?

Why does TU increase at a decreasing rate when MU decreases?

Suppose, price of goods X decreases from Rs 20 per unit to Rs 16 per unit and quantity demanded of X increases from 100 units to 120 units, find the price elasticity of demand.

Read the following table and answer the questions:

a. Find out the elasticity of supply movement from B to D and D to B by proportional method.
b. Find out the elasticity of supply from C to E and E to C by arc method.

Read the following case carefully and answer the questions that follow:The prices of essentials goods, including fruits and vegetables, have increased in the last seven days due to short supply of use commodities in the local market, as the loaded vehicles with the essential commodities have been unable to enter Nepal through India and other regions.Despite the continuous transportation protest in Terai since over a month, Terai farmers had not been able to sell their products in the market as a result the price of vegetables had gone significantly down.As the loaded vehicles were unable to enter Nepal since few days, the vegetable prices have raised in the domestic market. The price of potatoes has increased by Rs 20 per kg each to Rs 60 and Rs 45, respectively. Similarly, price of cauliflower has gone up by Rs 15 per kg to Rs 45 per kg the price of French bean, on the other hand, has raised Rs 25 per kg to Rs 60 per kg, as against Rs 45 per kg last week, according to whole sale market of Fruits and Vegetables, Kathmandu.As per the price list of whole sale market of Fruits and Vegetable, Kathmandu, prices of other vegetables and fruits have also increased heavily. The price rise, especially of potatoes and onions, is mainly due to uncertainty of import from India. Price of dry onions has soared by eye-watering Rs 50 per kg compared with Rs 105 per kg.Even the price of other vegetables that are produced within a country has raised due to low supply created by transportation protest, prices of pointed gourd (parwal) and balsam apple (barela) has increased by Rs 15 per kg each and their prices have been at Rs 60 and Rs 70 per kg.Likewise, price of fruits has increased substantively, price of pomegranate has increased by Rs 35 per kg to Rs 225 per kg. That of pineapple by Rs 15 per piece to Rs 110. Price of guava increased by Rs 22 per kg to Rs 57 per kg. Price of fresh fish has also sky-rocketed by Rs 100 per kg and is fixed Rs 315 per kg, compared to Rs 225 per kg on last week, demand of fish falls from 85000kg to 72000kg.

Questions:

a. Identify the causes for rising prices and explain them.

b. What are the relevant factors that affect the demand for and supply of fruits and vegetables?

c. Do you agree that rate of price fluctuation of fruits and vegetables are influenced by their elasticities? Give reasons.

d. What types of price control measures that government can follow to maintain stable prices for fruits and vegetables?

What is price ceiling?

Let, the income elasticity of demand for rice is \( e_y = -0.75 \). Interpret the result.

Define cross elasticity of demand and explain its types.

Explain the concept of consumer's surplus and producer's surplus.

How does subsidy policy of government affect the market equilibrium? The demand function for a product is \( \text{Q}_d = 3000 - 50\text{P} \), and supply function is \( \text{Q}_s = -1500 + 50\text{P} \). Find equilibrium price and quantity. If the government provides subsidy of Rs 6 per unit. What will be the effect on equilibrium price and quantity? 

What is indifference curve? Explain its properties.

Draw the budget line if income of consumer is Rs 5,000, price of goods X is Rs 50 and Price of goods Y is Rs 100.

Equality between slope of budget line and slope of indifference curve is the necessary condition for attaining consumer's equilibrium. Justify it.

Differentiate between cardinal and ordinal utility.

Define indifference curve. How does a consumer get equilibrium in indifference curve approach?

Write the assumptions of law of variable proportion.

Why does TP increase at an increasing rate when MP increases?

If the production function is \( Q = 20L + 10L^2 - 2L^3 \), find the TP and AP when L = 4.

How does firm minimize cost under given production quota? Explain.

Differentiate between economic profit and accounting profit with suitable examples.

Total cost function of producer is given by \( TC = 500 + 5Q - 0.4 Q^2 + 0.002Q^3 \). Find TFC, TVC, TC, AVC and MC to produce 4 units of output.

Define economic profit and accounting profit.

Let, MRTS = 2, compute the ratio of marginal productivities of two inputs.

If the production function is Q = 50L³K² and 10 units of capital and 2 units of labour, find the output of a firm.

The short run total cost function is given below.

TC = 200 + 5Q - 0.04 Q² + 0.001 Q³.

a. Calculate total fixed cost and average fixed cost at Q = 10.

b. Derive functions for average variable cost , average cost, marginal cost.

c. Compute the value of AVC, AC, TC and AVC at Q = 10.

What is isoquant? Explain its properties.

Describe the relationship between average cost and marginal cost.

State the condition for optimum employment of one variable input.

Distinguish between implicit and explicit cost.

Describe any four properties of Cobb-Douglas production function.

Let, the cost function \( \text{TC} = 6000 + 400\text{Q} - 20\text{Q}^2 + \text{Q}^3 \) and demand function\( \text{P} = 400 - 10\text{Q} \)

a. Compute TFC 

 b. Derive \( \text{TVC}, \text{AVC}, \text{AC} and \text{MC} \) functions.

Production function of a firm is \( \text{Q} = 200\sqrt{\text{KL}} \), wage rate of labor is Rs 160, price of capital is Rs 200 and price of the product is Rs 8 per unit. Determined optimum number of labor and capital that the firm should use in order to maximize output under given total cost outlay is Rs 8,000. Also calculate the total output and profit of the firm.

Write the formula for setting price under cost-plus pricing.

List out the features of oligopoly.

The monopolist has following demand and cost functions:

Find the price and output that maximize profit for the firm.

Explain the concept of Prisoner's Dilemma in Game Theory.

How are the price and the output determined under monopolistic competition in short run?

Mention the features of monopoly market.

Find the equilibrium quantity of a firm having marginal revenue function MR = 1200 – 25Q and marginal cost function MC= 200 + 25Q.

The demand function of a monopoly firm is P = 200 – 2Q and the cost function is C = Q² + 40Q + 2. Find profit maximizing output and maximum profit.

Monopoly firm is price maker. Why?

Write any two examples of two part-tariffs.

Find the equilibrium level of output of the firm when \( \text{MR} = 300 - 0.002\text{Q} \) and \( \text{MC} = 20 + 0.0008\text{Q} \).

How are the price and the output determined under monopolistic competition in long run? Explain.

The demand function of a firm is \( \text{P} = 40 - 0.4\text{Q} \) and cost function \( \text{C} = 280 + 8\text{Q} \). Compute profit maximizing price and \( \text{TR} \) and profit.

What are the causes for non-compensating wage differentials?

How does labour market attain equilibrium? Explain.

How are the price and the output determined under monopolistic competition in long run? Explain.

Explain the dominant strategy in game theory.

Explain the causes of shift in supply curve of labour.

Why does government fix minimum wages?

What is economic rent?

What is wage differential? Explain the factors that causes wage differentials.