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MS-09 Jan June 2017

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MS-09 Jan June 2017

  1. 1. SAMPLE MBA Solved Assignment MS-09 JAN JUNE 2017 Course Code MS-09 Course Title Managerial Economics Assignment Code MS-09/ TMA/SEM - I/2017 Assignment Coverage All Blocks To buy MBA assignments please use below link https://ignousolvedassignmentsmba.blog.spot.in/ KIAN PUBLICATION ignousolvedassignmentsmba@gmail.com kianpublication1@gmail.com ignou4you@gmail.com School of Management Studies INDIRA GANDHI NATIONAL OPEN UNIVERSITY MAIDAN GARHI, NEW DELHI – 110 068
  2. 2. 1. Opportunity costs are the ‘costs of sacrificed alternatives.’ Discuss with the help of examples. Opportunity cost of ----------------------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------- is the cost of displaced alternatives or costs of sacrificed alternatives. It implies that opportunity cost of anything is the alternative that has been foregone. Hence, they are also called as alternative costs. Opportunity cost represents only sacrificed alternatives. ------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------------------------------------------- decision. They help in taking decisions among alternatives. While taking a decision among several alternatives, a manager selects the best one which is more profitable or beneficial by sacrificing other alternatives. For example, a firm may decide ------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------of time, it will be a wise decision. On the other hand, if the total wage bill is ----------------------------------------------------------------------------------------------------------------- -----------------------------------------------------------------------------------------------------almost daily. The opportunity cost of anything is ---------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------the opportunity cost of a quintal of wheat is the amount of the output of potatoes given up. The opportunity costs are the ‘costs of sacrificed alternatives.’ Whenever the manager takes a decision ----------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------that is sacrificed. A machine can produce either X or Y. The opportunity cost of producing a given quantity of X is the quantity of Y which it would have produced. The opportunity cost of holding Rs.1000 as ---------------------------------------------- would have been earned had it been invested in the form of fixed deposits in the bank.  All decisions ------------------------------------------------------ cost calculation,  The opportunity cost may be ---------------------------------------- non-quantifiable or quantifiable. Opportunity costs’ relevance is not limited to individual decisions. Opportunity costs are also relevant to government’s decisions, which affect everyone in society. A common example is the guns--------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------------------------------------------) means that it must have less butter (fewer -------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------, helping the homeless, or paying off some of the national debt. For the country as a whole, the --------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------can produce, given its state of technology and total resources. It illustrates the menu of choices open to the economy. Let us take the example that the economy can ------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------. The opportunity cost of choosing guns over butter increases as the production of guns is increased. The reason is that some resources are relatively better suited to producing guns. The quantity of butter, ------------------------------------------------------------------------------------------------ ----------------------------------------------------------------------------------------------------------------------of guns, the PPC curve will be
  3. 3. concave to the origin---------------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------costs is the following assumptions: i) Some factors of production are ------------------------------------------------------------------------------------------------------------------ ----------------------------------------------------------------------------------------------------causes increasing opportunity costs. ii) The production of the goods require more of one factor than the other. For example, ------------------------------------------------- ---------------------------------------------------------------------------------------------------------cost of guns is likely to increase. Let us assume that an economy is at --------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------of a second unit of guns requires that additional CD units of butter be given up. A third ----------------------------------------------------------------------------------------------- -----------------------------------------------------------------------------------------------------------------------to be sacrificed, or in other words, the opportunity cost keeps on increasing. The opportunity cost of the first few units of ----------------------------------------------------------------------------------------------------- -----------------------------------------------------------------------------------------------------------------and more units of guns are produced, however, it becomes necessary to move into ---------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------------------larger. Thus, due to increasing opportunity costs the PPC is concave. If the PPC curve were to be a straight line--------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------unit of guns. The assumption of constant opportunity costs is very unrealistic. It implies that all the factors of production are equally efficient either in the production of butter or in the production of guns. For many of the choice society make opportunity ----------------------------------------------------------------------------------------------- -----------------------------------------------------------------------------------------------------------------------of increasing marginal opportunity cost. This principle states that in order to ------------------------------------------------------------------------------------------ ----------------------------------------------------------------are low, but they increase the more we concentrate on that activity. The guns versus butter model are an example --------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------between two options when spending its finite resources. It may buy either guns (invest in defense/military) or butter (invest in production of goods), or a combination of both. This may be seen as an ---------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------spending as a part of GDP. The
  4. 4. nation will have to decide which balance of ------------------------------------------------------------------------------------------------------ ----------------------------------------------------------------------------------------------------------------in political economy have viewed the trade-off between military and consumer spending as a useful predictor of election success. HOW ------------------------------------- (EXAMPLE): For example, let's assume you have $15, --------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------lifetime earnings that may have resulted from getting the graduate degree -- that is, you choose to forgo the increase in earnings when you use the money to buy stock instead. Here's another example. Let's say you have $15, ------------------------------------------------------------------------------------------------ ----------------------------------------------------------------------------------------------------------------------you've benefited from your decision because the --------------------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------is (5% - 2% = 3%). 2. How are income effect and substitution effect important in explaining the negative slope of demand functions? Explain giving examples from real world. The income effect The income and substitution effect ----------------------------------------------------------------------------------------------------------------- -----------------------------------------------------------------------------------------------------, real income - that is, what consumers can buy with their money income - rises and consumers increase their demand. Therefore, at a lower price, consumers ------------------------------------------------------------------------------------------------------------ ----------------------------------------------------------------------------------------------------------to cut back on their demand. The -------------------------- effect In addition, as the price of one ---------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------from the expensive alternative to the relatively cheaper one. It is important to remember ------------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------both an income and a substitution effect.
  5. 5. Example For example, a family living ----------------------------------------------------------------------------------------------------------------------- -----------------------------------------------------------------------------------------------rises by 25% to $2.50 per loaf, continuing to purchase 50 loaves would cost the individual $125, making the luxury unaffordable. They cannot reduce their consumption of bread, given that their current consumption ------------------------------------------------------------------------------------------------------ ----------------------------------------------------------------------------------------------------------------to spend, and, given no alternatives to bread, they would purchase 10 more loaves each month. Hence the 25% price increase has resulted in a 20% increase in the demand for bread - from 50 to 60 loaves. For most goods, --------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------so widely observed that it is called the law of demand. The law of demand is the -------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------and accurate description of the behaviour we would all expect to observe and for now, this will suffice. The law of demand states that consumers are ---------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------of demand is true for nearly all goods and services? Two influences, known as the income effect and the substitution effect, are particularly important in explaining the negative slope of demand functions. The --------------------------------------------------------------------------------- --------------------------------------------------- in a product’s price on real income, or purchasing power. If the price of something that we buy goes ------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------The substitution effect is the influence of a reduction in a product’s price ------------------------------------------------------------------------------------------------------ ------------------------------------------------- that good for others that have thus become relatively more expensive. The concept of demand is often -------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------graph for demand, the price is measured along the vertical axis and the quantities that would be ------------------------------------------------------------------------------------------------ ----------------------------------------------------------------------------------------------------------------------it. Any change in own price causes a movement along the curve as shown in Figure . In this case, a rise in price from P1 to P2 results in a fall in quantity demanded from Q1to Q2 i.e. a move from B* to A* in the figure.
  6. 6. The same information can also be ----------------------------------------------- for the demand function such as the following: P = 100 – 0.25Q where P is price and Q is quantity. -------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------------using regression analysis, explainedin unit 6) with increasing frequency. The market demand curve is the total of the quantities demanded by all individual consumers in an economy (or market area) at each price. Economic theory supports the -------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------combined. This relationship is demonstrated by the example in Figure, which shows two individual demand curves and the marketdemand that is estimated by adding the two curves together. A market demand curve is the sum of ------------------------------------------------- and able to purchase at various prices. If we plotted the quantity that all consumers in this ---------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------Rs. 15, the market demand would be 4 for the first consumer and 2 for the second consumer, giving a total of 6 units as market demand. Analogously, at Rs. 10.00 the total market demand is 13 units.Another way of -------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------------representing three consumers’ demand functions: Consumer 1: P = ------------------------------ Consumer 2: P = ----------------------- Consumer 3: -----------------------------------
  7. 7. You should substitute some value of -------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------equation for the market demand curve. Be careful while doing this. There is sometimes a ----------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------at each price have been added. For example, at a price of Rs. 6, consumer number 1 would buy six units ------------------------------------------------------------------ ----------------------------------------------------------------------------------------------------------------------------------------------------at a price of Rs. 6 is 12 units (6 + 2 + 4 = 12). The important point to remember is that the quantities are to be added; not the prices. To add the three given demand equations, we must --------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------------- horizontal axis). Solving the individual demand functions for Q as a function of P (for consumers 1, 2 and 3), we have— Q1 = 12 – P Q2 = 5 – 0.5P Q3 = 10 – P Adding these equations results in the ----------------------------------------- where QM is market demand. QM = 27 – 2.5P QM is the total quantity demanded. This is the -------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------to see that this form of expressing the market demand is consistent with the data shown in Table The market demand curve shows that the --------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------. As the price goes up, a smaller quantity is demanded. A change in quantity demanded is caused by a change in the price of the product for any given demand curve. This is true of individual consumers’ ------------------------------------------------------------------------------------------------------ ----------------------------------------------------------------------------------------------------------------ago, despite higher prices? Why are more paperback books bought today than in previous years, even though the price has gone up? Questions such as these are answered by looking at the determinants of demand. 3. When there are 2 inputs K, L, given the price of capital (PK)= 10 and price of labour (PL)=20. Total Expenditure C=100. Draw and explain the effect on the isocost curve in case of the following:-
  8. 8. (i) Decrease in price of labour (PL)=10 --------------------------------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------------- (ii) Increase in the price of capital (PK)= 20 ------------------------------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------------------ (iii) Decrease in the price of capital (PK)= 5 --------------------------------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------------------------------- -----------------------------------------------------------------------------------------------------------------------------------------------------------
  9. 9. ----------------------------------------------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------------- (iv) Increase in the firms budget with no change in the price of labour and capital. 4. Explain the difficulty in sustaining collusion with the help of prisoner’s dilemma. Collusion is an agreement -------------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------an objective forbidden by law typically by defrauding or gaining an unfair market advantage. It is an agreement among firms or individuals to divide a market, set prices, limit production or limit opportunities. It --------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------by collusion are considered void. In the study of economics and market ------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------of oligopoly, where the decision of a few firms to collude can significantly impact the market as a whole. Cartels are a special case of explicit collusion. Collusion which is overt, on the other hand, is known as tacit collusion, and is legal. Collusion usually -------------------------------------------------------------. This may involve:  Agreeing to ------------------------------------------------------- consumers.  Deals between suppliers and retailers. For example, ----------------------------------------------- maintenance.  Monopsony pricing – where retailers collude to reduce the amount paid to suppliers.  Collusion -------------------------------------------------------- to prevents market becoming more competitive.  --------------------------------------------------------------------------------------------- quotas.  Collusive tendering. For example, ‘---------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------to allow the firm of choice to win with a relatively high contract offer. Problems of collusion Collusion is seen as bad for ----------------------------------------------- regulated by governments. Collusion can lead to:  High prices for ------------------------------------------------ ---------------------------------------------------------------------------- ------------------------------------------------inefficiency (Price pushed up above marginal cost)  New firms can be -------------------------------------------------------------------------- act as barrier to entry.  Easy profits from collusion ----------------------------------------------------------------------------- productivity.  Industry gets the ---------------------------------------------------------------------------- (e.g. economies of scale) Justification for collusion
  10. 10. In times of unprofitable ------------------------------------------------------------------------------------------------------------------------------ -----------------------------------------------------------------------------------------to use this justification in 2002/03 after problems from foot and mouth disease on farm incomes. Research and ----------------------------------------------, be used to invest in research and development. Collusion, secret agreement and ----------------------------------------------------------------- fraudulent, deceitful, or illegal. An example of illegal collusion is a secret -------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------evidence that the firms have had any sort of contact at all. They may merely refrained from undercutting each other’s prices or from selling in each other’s market areas. Such collusion occurs when antimonopoly laws exist that ----------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------------------------------in setting prices and output targets makes sense only in terms of the benefits of collusion. In such cases, firms may be forced to reduce prices or to sell to suppliers in areas --------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------prior to those orders. How can firms collude without ever --------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------output, the price will be forced up and the firms may each enjoy their share of oligopoly profits. A firm can announce its price and output, which rivals might see as being higher than is sustainable in a competitive -------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------a slightly lower price, produce more, and take more of the market. Once one firm starts to behave competitively, all firms must follow suit or face losing their entire market. Sustaining prices and output at oligopolistic ----------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------dominant strategy to defect from cooperation, and hence collusion should fail. However, collusion may be sustained, just as collective action may be sustained in prisoner’s dilemma situations. If the game is repeated, -------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------------------may also do the same. Collusion is thus easiest in markets with fewer ------------------------------------------------------------------------------------------ -----------------------------------------------------------------------------------------------------------------------------control the outlets for their cars, than it is in markets for fresh fruit. The difficulty with sustaining collusion is often demonstrated by a classic strategic game known as the prisoner’s dilemma. The story is something like this. Two ------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------officers arrested the conductor as a spy. On the second day of interrogation, a ---------------------------------------------- talking. We have caught Tchaikovsky”. More seriously, suppose the KGB has ------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------earns the gratitude of the KGB and only one year in prison, but the other receives --------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------the outcome. The conductor knows that if ------------------------------------------------------------------------------------------------------------------------ -----------------------------------------------------------------------------------------------year confessing. Either way, it is better for the
  11. 11. conductor to confess. Tchaikovsky, in a ---------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------if they had not falsely confessed, but the scenario was such that, individually, false confession was rational. Pursuit of their own self interests made each worse off. This situation is the standard prisoner’s dilemma and is -------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------------------joint profit maximizing strategy for both is (Cooperate-Cooperate).2 The assumption in this game is that both the parties decided their strategies independently. Let us assume both parties -------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------------about the worst outcome that is 25 years in jail. Cooperation in this prisoner’s dilemma becomes even more difficult, because it is a one shot game. This scenario is easily transferred to the ---------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------lowers price, it gains customers and it is thus in its interests to do so. Once one company has cheated and lowered price, the other company must follow suit. Both companies have lowered their profits by ---------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------can be sustained. Robert Axelrod, a well-known political ----------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------strategy of its rival in each subsequent period. Axelrod likes the tit-for-tat strategy because it is nice, retaliatory, forgiving the clear. It is nice, because it starts by co- operating, retaliatory because it promptly punishes --------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------------, an eye for an eye. A fascinating example of tit-for-tat in ------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------opposing soldiers did likewise. This restraint was often in direct violation of high command orders. Examples of ------------------------------ Milk price ------------------------------------ After a period of low milk, butter and ------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------and other dairy products in supermarkets. After an OFT investigation, supermarkets and suppliers were fined a total of £116m. The OFT found prices set by supermarkets ------------------------------------------------------------------------------------------------------- ----------------------------------- by farmers did not go up. Milk collusion at BBC Bank loans collusion – RBS and Barclays 2008-2010
  12. 12. In 2010 the OFT found RBS and ------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------price competition and keep prices high. RBS was fined £28.59m. (Independent) Recruitment agencies forum cartel 2004-06 Between 2004 and 2006 six ------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------. They also excluded a new firm Parc from any dealings. Hays was fined £30.4 million for a ‘Serious breach of competition law.’ BBC link Collusion in -------------------------------------- – collusion on tender price In bidding for public sector ------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------price. This is a practise known as “Cover pricing”. Successful companies would often reward rivals with a secret payment for avoiding competition. During the investigation, the OFT ----------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------. Price fixing in air travel – British Airways and Virgin 2004-06 In 2007, British Airways was fined ---------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------to rising oil prices. Between 2004 and 2006, surcharges on air tickets rose from £5 to £60 per ticket. The £270m fine compares to an annual profit of £611m for BA. BBC link on collusion. 5. Briefly discuss the Chronology of Indian Telecom Deregulation from the year 2003 to present times. India's telecommunication network is the ------------------------------------------------------------------------------------------------------ -----------------------------------------------------------------------------------------------------------------call tariffs in the world enabled by mega telecom operators and hyper-competition among them. India has the world's second-largest Internet user-base. As on 31 March 2016, there were 342.65 million internet subscribers in the country. Major sectors of the Indian -------------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------an extensive system of modern network elements such as digital telephone exchanges, mobile switching centres, media gateways and signalling gateways at the core, interconnected by a wide variety of transmission ------------------------------------------------------------------------------------------------ -----------------------------------------------------------------------------------------------------------------------different copper-pair, optic- fibre and wireless technologies. DTH, a relatively new broadcasting technology has attained significant popularity in the Television segment. The introduction of private FM has --------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------------------satellite systems in the world. India possesses a diversified communications system, which links all parts of the country by telephone, Internet, radio, television and satellite. In 1997, the government set up TRAI ------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------government under the leadership of Atal Bihari Vajpayee was more pro-reforms and introduced better liberalisation policies. In 2000, the Vajpayee government constituted the ------------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------- adjudicatory and dispute settlement functions in order to strengthen the regulatory framework. Any dispute involving parties like licensor, licensee, service provider and consumers are resolved by TDSAT. Moreover, -------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------2000 and named it
  13. 13. as Department of Telecommunication Services (DTS) which was later named as Bharat Sanchar Nigam Limited (BSNL). The proposal of raising the stake of foreign ------------------------------------------------------------------------------------------------------------ -----------------------------------------------------------------------------------------------------------in April 2002, the government decided to cut its stake of 53% to 26% in VSNL and to throw it open for sale to private enterprises. TATA finally took 25% stake in VSNL. This was a gateway to many foreign investors to get ------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------further reduced licence fees for cellular service providers and increased the allowable stake to 74% for foreign companies. Because of all these factors, the service fees finally reduced and the call costs were cut ------------------------------------------------------------------------------------ -----------------------------------------------------------------------------------------------------------------------------------for growth of the Indian mobile market. Many private --------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------Indian telecom market. In March 2008 the total GSM and CDMA mobile ----------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------------which do not have International Mobile Equipment Identity (IMEI) numbers pose a serious security risk to the country, Mobile network operators therefore suspended the usage of around ---------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------------average monthly subscribers additions were around 0.05 to 0.1 million only and the ----------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------------------, the total number of mobile subscribers has increased rapidly to over 929 million subscribers as of May 2012. India has opted for the use of both the ------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------ some of the companies also provide the WLL service. The mobile tariffs in India have also become the lowest in the world. A new mobile connection can be activated with a monthly commitment of US$0.15 only. In 2005 alone additions increased to around 2 million per month in 2003–04 and 2004–05. The 2001 auction was the first time spectrum in a ------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------process. In 2010, 3G and 4G telecom spectrum were --------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------in India.[16] The Government earned ₹677 billion (-------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------of ₹385 billion (equivalent to ₹600 billion or US$9.0 billion in 2016) for a total revenue of ₹1,062 billion (equivalent to ₹1.7 trillion or US$25 billion in 2016) from both auctions. State-owned telecom companies BSNL ----------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------or US$2.4 billion in 2016) for spectrum in 20 circles and MTNL got spectrum for 3G services in 2 circles, Delhi and Mumbai. The auction took place over 34 days and consisted ---------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------------- Delhi, Mumbai, Karnataka, Tamil Nadu and Andhra Pradesh. They accounted for 65.56% of the total bids. In 2012, the DoT auctioned 2G spectrum in both GSM -------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------------------CDMA services respectively. Eleven blocks having 1.25 MHz each in the 1800 MHz frequency band were auctioned, except in Mumbai and Delhi where only eight blocks were available. Three of the ------------------------------------------------------------------------------------ -----------------------------------------------------------------------------------------------------------------------------------the 2G spectrum scam. New players and companies affected by the Supreme Court verdict will have to win at least 4 blocks in each circle to start or continue their operations in that circle. Existing ---------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------------, and in some circles for Idea. The auction took place over 2 days (starting 12 -------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------target of ₹ 280 billion. No one bid on the India-wide spectrum, which had a reserve price of Rs 140 billion. Bids were tendered on 102 of the 140 blocks being offered. Delhi, Mumbai, Karnataka and Rajasthan ----------------------------------------------------------------------------------------------
  14. 14. -------------------------------------------------------------------------------------------------------------------------There is no doubt about that. What procedure we follow for that auction is something that we will decide in another few weeks. In the 2013 spectrum auction, the Government ------------------------------------------------------------------------------------------------ -----------------------------------------------------------------------------------------------------------------------) up for auction and fixed the price of 900 MHz, two times higher than 1800 MHz. DoT issued notice inviting applications for spectrum auction on 30 January 2013, and the last date for submitting an application was 25 ---------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------as a result, the auction for those bands was postponed indefinitely. The auction for spectrum in 800 MHz band proceeded as planned on 11 March. No companies tendered bids for spectrum in ----------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------is a misperception of what is the value of spectrum. The reserve prices are set too ------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------that they have in mind just does not make sense". The auction was held on 11 March and lasted ---------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------spectrum was put up for auction. The participant in the auction, MTS, won spectrum in 8 circles and did not bid for 3 circles. No spectrum was put up for auction in the remaining circles of India. In 2014, the Dot auctioned 2G telecom spectrum in ----------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------------------. The 1800 MHz spectrum auctioned were cancelled by the Supreme Court, following the 2G spectrum scam. The government put on sale 307.2 MHz of 1800 and 46 MHz of 900 MHz-wide spectrum. The licenses are valid for 20 years. Vodafone and Bharti were already using 900 MHz frequency and had to ---------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------frequency. Companies also plan to provide 3G and 4G services on the spectrum. The auction took place over 10 days and ---------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------operator. Delhi and Mumbai together accounted for 57% of the total bids. The 2015 spectrum auction concluded on ------------------------------------------------------------------------------------------------------ -----------------------------------------------------------------------------------------------------------------accrued a total of ₹109,874 crore (US$16 billion) from the auction. Approximately, 11% of the spectrum available for auction remained unsold. The 2016 spectrum was held beginning 1st October. A ---------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------------------up for sale across 22 different circles. This was the first auction in India in which 700 MHz band spectrum was put on auction. Bharti Airtel, Vodafone, Idea Cellular, Reliance ------------------------------------------------------------------------------------------------ -----------------------------------------------------------------------------------------------------------------------was sold as the base price set was high. Indian Telecom sector has witnessed a robust growth during FY 2015-16. The ------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------------------------------- -----¬ plans. Intense competition between operators has created a price war encouraging them to adopt innovative pricing strategies. Rural areas have a subscriber base of 449.17 ---------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------------------invest huge amount on infrastructure along with special tari¬ plans and o¬ ers targeted at rural consumers. This will increase the subscriber base, bring in additional revenue for operators and enable telcos to provide better service to consumers.
  15. 15. 2016 is going to be the year of LTE in India --------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------commercial operations from September 2016. As a part of promotions, Jio has off ered 4G SIMs with unlimited data for 3 months with its LYF smartphones. Currently, the tari for 3G and 4G are similar ----------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------seam less connectivity and high QoS across the regions, putting pressure on LTE networks. Operators will have to provide high data rates over larger areas. This will be made possible through the use of low operating frequencies such as 800 and 1800 MHz in combination with 2300MHz. ------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------. In the coming years, 4G adoption rate in India will be about 1.5% of the ------------------------------------------------------------------------------------------------------------------ -----------------------------------------------------------------------------------------------------compatibility, but it will bring a massive revolution in the telecom market. Influencing Factors  Need --------------------------------- rate  increasing ---------------------------- and services  Intense ----------------------------- telcos  --------------------------------- spectrum With a rapid increase in the ------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------) per subscriber per month was 136.63 mb. The data usage for GSM was 122.93 mb while that of CDMA was 412.91 mb. Mobile data usage has more than doubled in the last three years. The huge jump in data consumption ------------------------------------------------------------------------------------------------ -----------------------------------------------------------------------------------------------------------------------usage by streaming music, coming years, due to 4G rollouts by telecom operators------------------------------------------------------------------------------------------ ---------------------------------------------------------------------------------------------India for a stage where data overtakes the voice which would only be possible with acceptance of data services by the sizeable semi-urban & rural population. The market is expected to grow at 10.3% Y-o---------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------. The need for higher data rates and the TRAI regulations on call drop issues have forced operators to enhance network capacity and coverage. Last year saw huge developments with respect to technology -------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------entry of Chinese handsets manufacturers in India will also boost the high-speed data demand of the subscribers increasing data ARPU and hence resulting in higher revenues of the telecom ------------------------------------------------------------------------------------------------------------------ -----------------------------------------------------------------------------------------------------reduced to 5-6 eventually. 6. Write short notes on the following:- (a) Market Demand curve Market demand is a series of ------------------------------------------------------------------------------------------------------------------------ -----------------------------------------------------------------------------------------------or service, provided other things such as number of consumers, consumer incomes and consumer tastes etc. remain constant. Market demand is ------------------------------------------------------------------------------------------------------------------------------------ -----------------------------------------------------------------------------------of consumers and multiply their average quantities demanded by the total number of consumers in the market to obtain market demand schedule.
  16. 16. Market ------------------------- Definition The market demand curve is the ----------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------quantity demanded by everyone in the market is 150 lattes per day. At $4/latte, the quantity demanded by everyone in the market is 1,000 lattes per day. The market demand curve gives the quantity demanded by -------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------. It can also be provided as a schedule, which is in table format. Equation To determine the market demand curve of a ------------------------------------------------------------------------------------------------------ -----------------------------------------------------------------------------------------------------------------a function of price (P) and it is summing all the individual demand curves (q), which are also a function of price. The subscripts one through n represent all the individuals in the market. Examples of Market Demand Curves To make things easy, let's assume ------------------------------------------------------------------------------------------------------------------ -----------------------------------------------------------------------------------------------------far right is the summation of the individual demand curves, which becomes the market demand curve. At $3 per latte, Jill would buy 24 ------------------------------------------------------------------------------------------------------------------ -----------------------------------------------------------------------------------------------------a demand curve. This graph shows the same market demand curve as the table. (b) Optimal Input Combination Using the tools developed in ------------------------------------------------------------------------------------------------------------------------ -----------------------------------------------------------------------------------------------may imply either maximizing the level of output produced subject to the constraint imposed ------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------faced with the problem of constrained maxima or constrained minima in production analysis. The technique of optimal input combination implying decision rule that we present here, is, therefore, not a new technique.
  17. 17. Case I We can formulate the constrained ------------------------------------------------------------------------------------------------------------------ -----------------------------------------------------------------------------------------------------function alongside the constraint L = Q (N, K) + λ (C- - PN - Pk) The decision ------------------------------------------------------------------------------------------------------------------------------------------ ----------------------------------------------------------------------------- This reads that in equilibrium----------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------terms, we have; OPTIMAL INPUT ---------------------------------------------------------------- COST The optimal input combination------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------point E; where there is a tangency between the iso-quant (showing substitution ratio) and the iso-cost curve (showing input price ratio). The optimal input combination --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------indicates the possibility for input substitutability in purchasing, and the isoquant indicates the possibility for input substitutability in production. When the two matches, the producer’s optimal input ------------------------------------------------------------------------------------------------------------- -----------------------------------------------------------------------------------holds, the proportionality between MIRTS and Pk/Pn is the stable equilibrium condition. Case II Alternatively, the ------------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------a desired given level of output. In other words, now Q- = Q (N, K). We can construct a new lagrange function. L*, using the new lagrange multiplier, L*=PNN+PKK+ ?*Q-N,?*, : λ*, we get: The reader may note that we have got back ------------------------------------------------------------------------------------------------------ -----------------------------------------------------------------------------------------------------------------input price ratio with the input’s marginal productivity ratio. In terms of the ------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------by the point E* is ON* of capital.
  18. 18. The combination will prove a ----------------------------------------- second order condition for constrained minima holds. Considering the two cases, -------------------------------------------------------------------------------------------------------------------------- -----------------------------------------------------in such amounts as to equate the marginal rate of technical substitution between inputs and the ratio of input prices. Unless this is satisfied, the producer should go on adjusting factor proportion. (c) Peak Load Pricing Peak load pricing is a ------------------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------that all forms of third-degree price discrimination, including peak load pricing-------------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------vary with time Peak-load pricing is a pricing ----------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------good in different periods of the day, month or year, then finding the optimal capacity (quantity supplied) and, afterwards, the optimal peak-load prices. This has particular applications in ----------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------costs of operation from the original demands we find the marginal benefits of capacity, which must then be vertically aggregated and equated to the marginal cost of increasing capacity. For example, the ------------------------------------------------------------------------------------------------------------ -----------------------------------------------------------------------------------------------------------off peak time where there is excess sparable capacity available. Telephone companies use a similar schedule. The below ----------------------------------------------------- peak-load pricing. It is a form of ---------------------------------------------- on efficiency. For goods and services, demand peaks at particular times — for roads and public transport during commuter rush hours, for electricity during late afternoon and so on. MC is also high during these peak ----------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------ curve for non-peak period. The firm sets MC = MR for each period, such that price P1 is high for the peak period, and the price P2 is lower for the off-peak period, with corresponding quantities Q1 and Q2. ------------------------------------------------------------------------------------------------ -----------------------------------------------------------------------------------------------------------------------prices are closer to MC. Peak-load pricing is different from ---------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------are not independent. However, price and sales in peak and off-peak period can be determined independently by setting MC = MR for each period as Fig. 9.13 shows. For example, a movie theatre, which ------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------during the evening. The owner of a movie theatre can determine the optimal prices for the evening and matinee shows independently, using estimates of demand in each period and of MC.
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