MBAE-103: Managerial Economics – Unit 2
Objectives: understand the rationale for existence of firms; understand the concept of economic profit and accounting profit; appreciate the use of opportunity cost & differentiate between various objectives of the firm.
Materials:
The relevant material is available here.
Questions:
- Outline the circular flow of economic activity between individuals and firms.
- ‘Managerial Economics serves as a link between traditional economics and decision sciences for business decision-making.’ Elucidate.
- Write notes in about 200 words on the following: a) The incremental concept b) Opportunity cost c) Scope of managerial economics d) The Invisible Hand
- Calculate, using the best estimates you can make for your opportunity cost of attending college.
- Use the following interest rates for government bonds for the risk-free discount rate and answer the following:
| Time of Maturity (years) | Interest Rate (%) |
| 1 | 5.75 |
| 2 | 6.00 |
| 3 | 6.25 |
| 4 | 6.50 |
| 5 | 6.75 |
(ii) What is the present value of a firm with a 5 years life span that earns the following stream of expected profit at the year-end?