F-2, Block, Amity CampusSec-125, Nodia (UP)India 201303

ASSIGNMENTSPROGRAM:SEMESTER-ISubject Name : Master of Finance and Control

Study COUNTRY : Zambia

Permanent Enrollment Number (PEN) :

Roll Number : MFC001412014-2016002

Student Name : DERICK MWANSA

INSTRUCTIONS1. Students are required to submit all three assignment sets.

ASSIGNMENTDETAILSMARKS

Assignment AFive Subjective Questions10

Assignment BThree Subjective Questions + Case Study10

Assignment C40 Objective Questions10

1. Total weightage given to these assignments is 30%. OR 30 Marks1. All assignments are to be completed as typed in word/pdf.1. All questions are required to be attempted.1. All the three assignments are to be completed by due dates (specified from time to time) and need to be submitted for evaluation by Amity University.1. The evaluated assignment marks will be made available within six weeks. Thereafter, these will be destroyed at the end of each semester.1. The students have to attach a scan signature in the form.

Signature:____________Date:_______19/01/2015___

( ) Tick mark in front of the assignments submittedAssignment AAssignment BAssignment C

MANAGERIAL ECONOMICSMANAGERIAL ECONOMICSASSIGNMENT AQuestion oneAnswerOrdinal Approach is the Indifference Curve approach. The indifference curve is basically a downward sloping convex curve which shows all the different possible bundles that is combination of goods x and y which give the consumer the same level of satisfaction. Since the level of satisfaction / utility is the same, he is indifferent to either of the bundles. The higher the indifferent the higher will be the level of satisfaction gained by the consumer, so in an ordinal concept, higher indifferent curve equal to higher satisfaction equal to higher scale of preference. When we draw a budget line it indicates the maximum income which we can spend to satisfy the want for the commodities. So consumer equilibrium is obtained at a point where the budget line is a tangent to an indifference curve. Any indifference which is higher than the budget is un attainable and any indifference curve below the budget line means that the consumer is not fully satisfying his resources.Indifference curve analysis has abandoned the concept of cardinal utility, instead has adopted the concept of ordinal utility. According to indifference curve theory, utility is psychic entity and cannot therefore be measured in quantitative cardinal terms. Utility being psychological feeling, is not quantifiable, consumer can only compare the different levels of satisfaction.

ASSIGNMENT AQuestion twoAnswerTotal costTotal cost is the total expenditure incurred on the production. It connotes both explicit and implicit money expenditure and includes fixed and variable costs.

Where: total cost

output

technology

prices of factors

fixed factors

Average CostIt is obtained by dividing the total cost by the total output.

Where AC=Average cost, TC= Total cost and Q= Quantity produced.Marginal CostMarginal cost is the change in the total cost for producing an extra unit of output. MC= TC(n)- TC(n-1)Where MC= Marginal cost, TC(n)= Total cost at output n, TC(n-1)= Total cost at out put (n-1)The basic average cost and marginal cost of a company are very different concepts, but they work together and fluctuate up and down according to how the other cost grows or declines.Average cost is the rate of the total cost to the total number of goods sold. It is equal to the total cost of goods produced divided by the number of items produced. Average cost can also be described as the sum of the average variable costs and average fixed costs.On the other hand marginal cost is the cost that has incurred due to an additional unit or product. Average cost and marginal cost are interrelated because when the marginal cost goes up or down, the average cost will fluctuate as well. When marginal cost is greater than average cost, it pulls the average cost upwards. If its lower than average cost then marginal cost pulls average cost downwards. When average cost and marginal cost are of same value then average cost remains constant, without any change. The average total cost is the sum of average fixed cost and average variable cost. The relationship between average cost and marginal cost Both are calculated from total cost. When average cost falls, marginal cost is less than average cost. When marginal cost is equal to average cost, average cost is minimum. When average cost increases, marginal cost is greater than average cost. Marginal cost curve cuts, average cost curve from below. Minimum point of marginal cost comes before minimum point of average cost. The diagram below shows their relationship.

ASSIGNMENT AQuestion threeAnswerThe law of variable proportions and the law of returns to scale help managers to monitor the changes in efficiency of productive units that comes as a result of scaling up productive inputs as explained below:-The law of returns to scaleThe law of returns to scale describes the relationship between outputs and scale of inputs in the long-run when all the inputs are increased in the same proportion. According to Professor Rodger Miller, Returns to scale refer to the relationship between changes in output and proportionate changes in all factors of production. To meet a long-run change in demand, the firm increases its scale of production by using more space, more machines and labourers in the factory.The law of returns to scale assumes that:- All factor inputs are variable but enterprise is fixed. A worker works with given tools and implements. Technological changes are absent. There is perfect competition. The product is measured in quantitiesGiven the above assumptions, when all inputs are increased in unchanged proportions and the scale of production is expended, the effect on output shows three stages, increasing returns to scale, constant returns to scale and diminishing returns to scale as shown in the table below.UnityScale of productionTotal ReturnsMarginal Returns

123

1 worker + 2 acres land.2 workers + 4 acres land3 workers + 6 acres land817278910IncreasingReturns

454 workers + 8 acres land5 workers + 10 acres land38491111ConstantReturns

6786 workers + 12 acres land7 workers + 14 acres land8 workers + 16 acres land 5968761098DiminishingReturns

Increasing returns to scaleReturns to scale increase because the increase in total output is more than proportionate to the increase in all inputs. The table reveals that in the beginning with the scale of production of (1 worker + 2 acres of land) total output is 8. To increase output when the scale of production is doubled (2 workers + 4 acres of land) total returns are more than doubled. They become 17. If the scale is trebled (3 workers + 6 acres of land) the scale is more than three- folds that is 27.Constant returns to scale.Returns to scale become constant as the increase in total output is in exact proportion to the increase in inputs. If the scale of production is increased further, total returns will increase in such a way that the marginal returns become constant. In the table the 4th and 5th units of the scale of production marginal returns are 11 that is returns to scale are constant.Diminishing returns to scaleReturns to scale diminish because the increase in output is less than proportional to the increase in inputs. The table shows that when output is increased from the 6th , 7th and 8th , the total returns increase at a lower rate than before so that the marginal rate start diminishing successively to 10, 9 and 8.The law of variable proportionsIf one input is variable and all other inputs are fixed the firms production function exhibits the law of variable proportions. If the number of units of a variable factor is increased, keeping other factors constant, how output changes is the concern of the law of Variable Proportions. Suppose land, plant and equipment are the fixed factors, and labour the variable factor. When the number of labourers is increased successively to have larger output, the proportion between fixed and variable is altered and the law of variable proportions sets in. The law states that as the quantity of a variable input is increased by equal doses keeping the quantities of other inputs constant, total product will increase, but after a point at a diminishing rate.Assumptions Only one factor is variable while others are held constant. All units of a variable factor are homogeneous. There is no change in the technology. It is possible to vary the proportions in which different inputs are combined. It assumes a short-run situation, for in the long-run all factors are variable. The product is measured in physical units.Below is a table where fixed land of 4 acres, variable input labour is employed and the resultant output is obtained. No. of WorkersTotal ProductsAverage ProductsMarginalProductsStage

1238203681012812161

45648556012121112752

7860568.670-43

Stage I: Increasing ReturnsIn stage one the average product reaches the maximum and equals the marginal product when 4 workers are employed. In this stage land is too much in relation to the workers employed. It therefore profitable for a producer to increase workers and produce more and more output. It becomes cheaper to produce the additional output. Producer expands through this stage.Stage II: Diminishing returnsIn stage II land is scarce and is used intensively, more and more workers are employed in order to have larger output. Thus total product increases at a diminishing rate and the average and marginal product decline. Production remains feasible and profitable because in this stage the marginal productivity of labour, though positive, is diminishing but is non-negative. Stage III: Negative marginal returnsProduction cannot take place in this stage, for in this stage, total product start declining and the marginal product become negative. The employment of the 8th worker actually causes a decrease in total output from 60 to 56 units and makes the marginal product minus 4. The workers are too many to be productive. ASSIGNMENT AQuestion fourAnswerDemand forecasting is a prelude to planning. Before making plans an estimate must be of what conditions will exist over some future period. Firms cannot wait until orders are received before they start to plan what to produce. Customers usually demand delivery in reasonable time and manufacturers must anticipate future demand for products or services and plan to provide the capacity and resources to meet that demand.The primary purpose of an organisation is to serve the customer . Marketing focuses on meeting customer needs, but operations through materials management must provide the resources. The coordination of plans by these two parties is called demand management which can only be attained by using demand forecast information. Demand management occurs in short, medium and long-term. In the long term demand projections are needed for strategic business planning of things like facility. In the medium term, the purpose of demand management is to project aggregate demand for production planning. In the short run demand management is needed for items and is associated with master production scheduling.If materials and capacity are to be planned effectively all sources of demand must be identified. These include foreign and domestic customers, other plants in the corporation, branch warehouse, distribution inventory etc.By not adequately estimating demand, the consequences may be over supplying/producing or under supplying/producing, both of which cause serious financial consequences for the company.Below are the consequences of placing a product on the market by a large scale firm without estimating demand for its products:- Over supplying. Limited product shelf life. Storage costs. Money will be held up in stock. Loss of revenue as the firm may be forced to sell at reduced price. Reduced staff morale as they may feel their product has not been accepted by the market.

ASSIGNMENT AQuestion FiveAnswer.Decision making is concerned with the selection of one alternative course of action from two or more alternative actions. It is a choice making activity. These steps can be explained as below:-Define the problemThe first and foremost step in decision making process is to define the real problem. The manager should consider critical or strategic factors in defining the problem. These factors are in fact, obstacles in the way of finding proper solution. These are also known as limiting factors. For example if a machine stops working due to non-availability of screw, screw is the limiting factor in this case. While selecting alternative or probable solution to the problem, the more the decision making takes into account those factors that are limiting or critical to alternative solution, the easier it becomes to take best decision.Analysing the problemAfter defining the problem, the next important step is systematic analysis of the available data. Sound decisions are based on proper collection, classification and analysis of facts and figures. As information is analysed the following should be considered:--The futurity of the decision. To what length of time, the decision will be applicable to a course of action.-The impact of decision on other functions and areas of the business.-The qualitative considerations which come into the picture.Developing alternative solutionsAfter defining and analysing the problem, the next step is to develop alternative solutions. The main aim of developing alternative solutions is to have the best possible decision out of the available alternative course of action. In developing alternative solutions, the manager comes across creative or original solutions to problem. The techniques of operations research and computer applications are immensely helpful in the development of alternative course of action.Selecting the best alternativeAfter developing various alternatives, the manager has to select the best alternative. In selecting the best from alternatives the following has to be considered:--Risk element involved in each course of action against the expected gain.- Economy of effort involved involved in each alternative that is securing desired results with the least effort.- Recourses available at our disposal, this includes human resource in terms of skills to implement.Implementation of the decisionThe manager has to put the selected decision into action. For proper and effective execution of the decision, the following three steps are very important:--Proper and effective communication of decisions to the subordinates in clear, concise and understandable manner.- Acceptance of decisions by subordinates. Participation and involvement of employees will facilitate the smooth execution of decisions.-Correct timing in the execution of the decision minimises the resistance.Follow upA follow up system ensures the achievement of the objectives. It is exercised through control. Simply stated it is concerned with the process of checking the proper implementation of decision. Follow up is indispensable so as to modify and improve upon the decisions at the earliest opportunity.Monitoring and feedback Feedback provides the means of determine the effectiveness of the implemented decision. If possible, a mechanism should be built which would give periodic reports on the success of the implementation. In addition, the mechanism should also serve as an instrument of preventive maintenance so that problems can be prevented before they occur. Below is two techniques employed to make the group decision making process more efficient in which creativity is encouraged:-BrainstormingThis technique involves a group of people, usually between five and ten, sitting around a table, generating ideas in the form of free association. The primary focus is on generation of ideas rather than on evaluation of ideas.If a large number of ideas can be generated, then it is likely that there will be a unique and creative idea among them. All these ideas are written on the black board with a piece of chalk so that everybody can see every idea and try to improve such ideas.Brain storming technique is very effective when the problem is comparatively specific and can be simply defined. A complex problem can be broken down into parts and each part can be taken separately at a time. Nominal group techniqueNominal group technique is similar to brainstorming except that the approach is more structured. Members form the group in name only and operate independently, generating ideas for solving the problem on their own, in silence and in writing. Members do not interact with each other so that strong personality domination is avoided. It encourages individual creativity. The group coordinator either collects these written ideas or writes then on a large black board for everyone to see or he asks each member to speak out and then he writes it on the black board as he receives it. These ideas are then discussed one by one in turn and each participant is encouraged to comment on these ideas for the purpose of clarification and improvement. After all ideas are discussed, they are evaluated for their merits and draw backs and each participating member is required to vote on each idea and assign it a rank on the basis of priority of each alternative solution. The idea with the highest aggregate ranking is selected as the final solution to the problem.

ASSIGNMENT BQuestion oneAnswerIn perfect market conditions also called perfect competition a firm is a price taker because other firms can enter the market easily and produce a product that is undistinguishable from every other firms product. This makes it impossible for any firm to set its own prices.A price taker is a firm that cannot have any say in setting its own prices. A price taker simply has to accept the market price. This is in contrast to a price maker, which can have an influence over the price it sells its products.In perfect competition, there are two main reasons why a firm cannot get away with setting its prices above the market price.Firstly there is no difference between its products and that of every other firm in the market. Therefore, no one will pay extra for the firms product the way that they might pay extra for something like Nike shoes. Secondly, if the firm were to succeed in setting a higher price, more firms would enter the market, attracted by the higher profits that where available. This would increase supply and drive down the price of the firms product.In perfect competition, firms sell homogeneous products and it is easy for a firm to enter the market. These two factors make it impossible for firms to set their prices above market price. This makes them into price takers.A perfectly competitive market is one in which the number of sellers is large and all of them are producing homogeneous goods and there is no price competition.A price is set by the industry and each firm acts as a price taker, this happens because all are producing homogeneous goods due to which they cannot set different prices, because if a firm sets higher price the consumer will shift towards a firm which is priced low.

ASSIGNMENT BQuestion twoAnswerMaximising sales revenue is an alternative to profit maximisation and occurs when the marginal revenue, MR, from selling an extra unit is zero. The condition for revenue maximisation is to produce up to the point where MR=0.Jack Baumols findings of oligopoly firms in America revealed that they follow sales maximisation objective. According to Baumol, with the separation of ownership and control in modern corporations, managers seek prestige and higher salaries by trying to expand company sales even at the expense of profit.Sales maximisationSales maximisation is another possible goal and occurs when the firm sales as much as possible without making a loss. Not for profit organisations may choose to operate at this level of output, as may profit making firms faced with certain situations, or employing certain strategies. For example a firm would adopt a predatory pricing where, so long as costs are covered, a firm may reduce price to drive rivals out of the market.Managers are more interested in firm size than profits. Size leads to greater monetary and non-monetary rewards. For example, managers usually have sales related bonuses. The size of the firm they are managing gives them greater sense of worth, rather than just making their boss richer.Rationalism of sales maximisation modelIn support of his theory Baumol argues that:- There is evidence that salaries and other earnings of top managers are correlated more closely with sales than profits. Large sales, growing overtime, give prestige to the managers, while large profits go into the pockets of shareholders. Increase in sales and expansion in its market is a sign of healthy growth of a normal company. Banks and financial institutions are more willing to finance firms with large and growing sales. Personnel problems are handled more satisfactorily when sales are growing. Employees at all levels can be given higher earnings and better working terms. It increases the competitive ability of the firm and enhances its influence in the market. In the short run when output cannot be increased, revenue can be increased by raising the price. But in the long run, it would be in the interest of the sales maximising firm to keep the price low in order to compete more effectively for a large share of the market and thus earn more revenue. ASSIGNMENT BQuestion threeAnswerThe pricing strategy for a new product should be developed so that the desired impact on the market is achieved while the emergency of competitors is discouraged. Some of the strategies that may be used in pricing a new product are skimming pricing and penetration pricing.Skimming pricingSkimming pricing is the strategy of establishing a higher initial price for a product with a view to Skimming the cream off the market at the upper end of the demand curve. It is accompanied by heavy expenditure on promotion. A skimming strategy may be recommended when the nature of demand is uncertain, when the company has expended large sums of money on research and development for a new product, when the competition is expected to develop and market a similar product in the near future, or when the product is so innovative that the market is expected to mature very slowly. Under these circumstances, a skimming strategy has several advantages.At the end of the demand curve price elasticity is low. Besides in the absence of any close substitute, cross- elasticity is also low. These factors along with heavy emphasis on promotion tend to help the product make significant inroads into the market. The higher price also help segment the market. Later on, the mass market can be tapped by lowering the price. Skimming pricing is commonly used when a new drug is introduced on the market. The decision about how high a skimming price should be depends on two factors. That is the probability of competitors entering the market and price elasticity at the upper end of the demand curve. If competitors are expected to introduce their own brands quickly, it may be ideal to price high. If competitors are years behind in product development a low rate of return to the firm would slow the pace of research development at competing firms, adopting skimming pricing would be ideal.Penetration pricingPenetration pricing is the strategy of entering the market with a low initial price so that a greater share of the market can be captured.The penetration pricing is used when an elite market does not exist and demand seems to be elastic over the entire demand curve, even during early stages of product introduction. High price elasticity of demand is the most important reason for adopting a penetration strategy. The penetration strategy is also used to discourage competitors from entering the market. When competitors are seen to be encroaching on a market an attempt is made to lure them away by means of penetration pricing, which yields lower margins.One may also turn to penetration pricing with a view to achieve economies of scale. However, before turning to penetration pricing, one must ensure that the product fits the life styles of the mass market. How low the penetration price should be differ from case to case.ASSIGNMENT BQuestion 3Case studyAnswerBenefits of outsourcing to developed nations Outsourcing to countries with lower wage allows developed nations like America to remain competitive on the global basis, American businesss return their profits to provide future growth to the American economy. According to McKisey Global Institute for every dollar outsourced to India $1.14 is returned to the American economy. It also provides consumers with cheaper goods. This allows consumers to spend the extra money on many different sectors of the economy. In the long- run outsourcing helps to create managerial jobs for the Americans. Outsourcing can easily save jobs, save the company, save most peoples jobs, keep prices down and offer great service by re-locating some jobs to other less expensive parts of the world. Highly skilled people are available in some of the poorest nations. Their daily cost of living is lower, and can be paid less while still enabling them to enjoy a good standard life. Provides an opportunity for developed nations to bridge the growing gap between the richest and the poorest nations.Disadvantage of outsourcing to developed countries Outsourcing to Asia and other countries where labour is cheap takes away jobs (in developed nations) in this case that Americans should have gotten. Americans get huge debts to finish college but their jobs are being shipped overseas so that companies can make huge profits which only benefit the shareholder and not the common man. Destroys the middle class by shifting factories overseas. Takes away citizens pride for products would be labelled as being made in a different country. Benefits of outsourcing to developing nations People in developing countries really need the investment that comes from outsourcing. It helps to reduce the problems of unemployment in developing countries. It gives developing countries foreign capital investment and infrastructure. Creates middle class in developing countries Brings pride to developing nations respective citizens. For instance a multinational corporation with a manufacturing base in India will produce goods with a label showing that it was made in India Developing nations gets the opportunity to learn how to practically run business corporations. Its an opportunity to learn the positive cultural values of different nations.Disadvantage of out sourcing to developing Nations Inferior jobs are the ones give to citizens of developing nations in most cases. Exploitative wages are paid. In some cases business ventures that are hazardous are the ones shipped overseas. Rich multinational corporations sometimes take advantage of the situations in developing countries and start influencing the political direction.

ASSIGNMENT CMultiple choiceAnswers.1C9C17C25B33B

2B10B18C26A34C

3B11C19A27D35D

4A12B20B28C36B

5B13B21C29D37D

6D14A22B30B38A

7B15B23B31A39C

8B16A24B32C40A