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Roll Number:
Drive:
Program and Semester
Subject Code and Name
Sourav Biswas
1311005099
WINTER 2013
MBA: 1
MB0042- Managerial
Economics
MANAGERIAL ECONOMICS
Question 1: Most of the firms spend considerable amount of
money in advertisement. Explain advertising elasticity of
demand and its practical application in this context.
Answer 1: In this competitive world, generally most of the firms,
spends considerable amount of money on their advertisement
and other sales promotional with the object of promoting its
sales. Thus it can be said that, advertising elasticity refers to
the responsiveness of demand or sales to change in advertising
or other promotional expenses. Thus the formula to calculate
the advertising elasticity is as follows:
Percentage change in demand or sales
Ea=
Percentage change in Advertisement expenditure
Practical application of advertising elasticity of demand:
In the recent years, the study of advertising elasticity of
demand is of paramount importance to a firm because of fierce
competition. The practical applications of advertising elasticity
of demand are as follows:
(1)
(2)
(3)
(2)
The distinction between the two holds good only in short run,
whereas in the long run all factor input become variable in
nature.
Short run is a period of time in which only the variable factors
can be varied while fixed factors like plants, machines, top
management etc would remain constant. Long run is a period
of time wherein the producer will have adequate time to make
changes in the factor combinations.
It is important to note that production function is assumed to be
a continuous function i.e. it is assumed that a change in any of
the variable factors produces corresponding changes in the
output.
There are two types of production functions. They are as
follows:
(1)
(2)
(2)
Determinants of investment :
Investment decisions are taken by entrepreneurs depend upon
a number of factors such as interest rate, political environment,
rate of growth of population, the necessity of new products and
etc. This factors affect the volume of investment. The
profitability of investment depends mainly on two factors:
Marginal efficiency of capital.
Interest rate.