1)What are the Objectives Of Managerial Economics .

The major objectives of managerial economics are to identify

themes and trends that could be the cause and effect of good and
bad business decisions. Managerial economics is mainly about
making right decisions concerning the management, and the
monetary aspects of the business organisation. Hence, we have to
ensure that all these are taken into consideration. Some of the
objectives are discussed below

The main objectives of managerial economics are to:

• Assist in making decisions on the various areas that affect

business. It can include risk management, manufacturing, pricing,
and investment.

• Implement devices that measure the broad scale of a company’s

financial goals.

• Assist in maximising the profit of the firm.

• Make cost-effective suggestions.

• Develop a top-scale database program that identifies obstacles.

2. Neoclassical Growth Model

The Neoclassical Growth Theory is an economic model of growth that
outlines how a steady economic growth rate results when three
economic forces come into play: labor, capital, and technology. The
simplest and most popular version of the Neoclassical Growth Model is
the Solow-Swan Growth Model.
Production Function in the Neoclassical Growth Model

The Neoclassical Growth Model claims that capital accumulation in an

economy, and how people make use of it, is important for determining
economic growth.

It further claims that the relationship between capital and labor in an

economy determines its total output. Finally, the theory states that
technology augments labor productivity, increasing the total output
through increased efficiency of labor. Therefore, the production
function of the neoclassical growth model is used to measure the
economic growth and equilibrium of an economy. The general
production function in the neoclassical growth model takes the
following form:

Y = AF (K, L)

Where:

 Y – Income, or the economy’s Gross Domestic Product (GDP)

 K – Capital
 L – Amount of unskilled labor in the economy
 A – Determinant level of technology

Also, because of the dynamic relationship between labor and

technology, an economy’s production function is often re-stated as Y =
F (K, AL). This states that technology is labor augmenting and that
workers’ productivity depends on the level of technology.

Assumptions of the Neoclassical Growth Model

 Capital subject to diminishing returns: An important

assumption of the neoclassical growth model is that capital (K) is
subject to diminishing returns provided the economy is a closed
economy.
 Impact on total output: Provided that labor is fixed or constant,
the impact on the total output of the last unit of the capital
accumulated will always be less than the one before.
 Steady state of the economy: In the short term, the rate of
growth slows down as diminishing returns take effect, and the
 economy converts into a “steady-state” economy, where the
economy is steady, or in other words, in a relatively constant
state.
3.State and explain the law of DMU. What are its assumptions ?
 Law of Diminishing Marginal Utility (DMU) states that as we
consume more and more units of a commodity, the utility
derived from each successive unit goes on decreasing. 
 People spend their income on various goods because
consuming more and more of any one good reduces the
marginal satisfaction obtained from further consumption of
the same good. 
 Law of DMU has universal applicability and applies to all goods
and services.
Assumptions of DMU:

 Cardinal measurement of utility: it is assumed that utility can be

measured and it can be expressed in numerical terms as 1, 2, 3,
etc.
 Monetary measurement of utility: it is assumed that utility can be
measured in monetary terms.
 Continuous consumption: it is assumed that consumption is a
continuous process. For example, if one ice-cream is consumed
in the morning and another in the evening, then second ice-
cream may provide equal or higher satisfaction.
 No change in quality: quality is assumed as uniform and
constant.  
 Fixed income and prices: it is assumed that income of the
consumer and prices of the goods are assumed to be constant. 
4. Indifference Curve and its properties with diagrams.
An indifference curve is the locus of all those combinations of two goods
that yields the same level of utility (satisfaction) to the consumer so that the
consumer is indifferent to purchase the particular combination s/he selects.

Such a situation arises because a consumer consumes a large number of

goods and services. Often he finds that one commodity serves as a substitute
for another. This allows him to substitute one commodity for another. In this
case, he can make various combinations of two goods that give him the same
level of satisfaction. 

When a consumer faces such combinations of goods, he/she would be

indifferent between the combinations. When such combinations are plotted
graphically, it gives a curve. This curve is known as the indifference curve.
It is also called the iso-utility curve or equal utility curve.
According to Anna Koutsoyaiannis, “An indifference curve is the locus of
points-particular combination or bundles of goods, which yields the same
utility (i.e, satisfaction) to the consumer so that he is indifferent as to the
particular combination he consumes”.
Indifference Map
An indifference map is a set of indifference curves plotted on a single
cartesian plane. An indifference map shows different indifference curves
which rank the preference of the consumer. Combinations that lie on an
indifference curve give the same level of satisfaction to the consumer.
However, a higher indifference curve represents a higher level of satisfaction
than a lower indifference curve. 

An indifference curve far from the origin is called higher indifference curve
and near to the origin is called a lower indifference curve. An indifference
map can be shown as follows:
In the above figure, commodity X is measured on X-axis and Y commodity
on Y-axis. The indifference curve shows those combinations of two goods
that yield the same satisfaction level. IC3 yields higher satisfaction than IC2.
IC1 yields the lowest level of satisfaction. This is because higher IC contains
more units of at least one commodity.
Properties or Characteristics of Indifference Curve
1. Indifference curve has a negative slope: 

2. Indifference Curve is Convex to the origin:

3. Indifference curves neither Intersect nor become tangent to one another:

4. Higher indifference curve represents a higher level of satisfaction than the

lower ones: 

5. Indifference curves are not necessarily parallel: 

6. Indifference curve does not touch either of the axes: 

7. An indifference curve may not necessarily be a straight line:

8. Combinations that lie on an indifference curve give the same level of

satisfaction:

9. Two indifference curves include more indifference curves between their gap

5Changes in Demand
If the product's price is constant and the other factors are variable, then
shifting of the demand curve is possible in the rightward or leftward
direction. It depicts the Change in Demand, therefore the movement is not
restricted along the single demand curve. The move is possible for a
higher or lower demand curve. In the above figure, when Demand
increases, the demand curve shifts rightward from
D2D2D2D2
to
D3D3D3D3
, and when demand decreases, the demand curve shifts leftward from
D2D2D2D2
to
D1D1D1D1
. Hence, understanding the concept of demand change is vital.

In the above graph, we can see that there is a shift from

DtoD1DtoD1
indicating a fall in demand at the same market price. We can also see a
shift from
DtoD2DtoD2
, indicating a rise in demand at the same price. 

6.What are the degrees of elasticity of demand?

The degree of price elasticity of demand ranges from zero to infinity. It can be
equal to zero, less than one, greater than one and equal to unity.
7.Exceptions of Law of supply.
The law of supply states that the sellers are willing to sell more
goods at a higher market price of a commodity and vice-versa. In
other words, when the price of a commodity increases its supply
increases and when the price of a commodity decreases its supply
decreases, other things being constant. Thus, there is a direct
relationship between the price of a commodity and its supply.
However, there are some exceptions of law of supply.

Exceptions of Law of supply

There are certain circumstances under which the law of supply may
not hold true. It means that the price of the commodity and its supply
may not move in the same direction. Thus, the exceptions to the law
of supply are as follows

 Closure of business
 Agricultural products
 Monopoly
 Competition
 Perishable Goods
 Rare goods
 Out of fashion goods

8.Producer’s Equilibrium
An organization is under equilibrium if there is no increase or decrease in
it’s profits. This equilibrium bubble is when the company is gaining its
maximum profit.  
 
Producer’s equilibrium is the output where the producer gets maximized
profits. So a producer can reach a producer’s equilibrium if his profits are
at their highest levels. An organization is in equilibrium if there is no scope
for either increasing the profit or reducing its loss by changing the quality
of the output. Therefore, we have
 
Profit  = Total Revenue - Total Cost
Which is written as  P=  TR - TC
 
Hence, the output level at which the total revenue minus the total cost is
maximum is the equilibrium level of the output. There are two approaches
to arrive at the producer’s equilibrium:
Total Revenue - Total Cost (TR-TC) Approach
Marginal Revenue - Marginal Cost (MR-MC) Approach
 
In order to find the producer's equilibrium, it is important to learn about
isoquant curves and iso-cost lines. By understanding these two concepts,
you can calculate optimum production.

Methods of Determining Producer’s Equilibrium 

1. TR - TC Approach - This is the total revenue total cost method. As
per this method, there are two conditions to meet the producer’s
equilibrium. 
a. Difference between Total revenue and the total cost is positively
maximized.
b. Profits fall after this level of output even if one more unit of output
is produced. 
2. MR - MC Approach - This is called the marginal revenue marginal
cost method which is derived from the TR-TC approach under the
condition that marginal revenue is equal to  Marginal cost. So till the
point, MC is less than MR, the firm would keep producing products
till she or he hits the level of equal MR and MC. MC > MR after the
output level is reached as it is not a sufficient condition to reach the
producer’s equilibrium. For any additional unit of production, MC
must cut the MR curve from the below.
Here, MR is an additional amount earned over and above TR
(total revenue) when more than 1 unit of product is sold. MC is
an additional cost incurred over and above TC when more than
1 unit of product is produced. We will now examine this
approach with the following 2 situations.
When price remains constant
When the price falls with output increase -