Mid-Term Examination

MBA in Food and Agri Business Management

1st Semester
Academic Year 2021-22
Course Name: - Managerial Economics (MECO)
Time Duration: 60 Minutes Max. Marks: 40

All questions are compulsory.

1 Do you agree with the fact that demand and supply together plays a very
important role in determining the price of the product. In the light of this
discuss the role of expectations as demand and supply shifters. [4+3]=7
2 What are the main determinants of Price Elasticity of demand?
Bring out the significance of Price, Income & Cross elasticities of demand for
managers of firms mainly with respect to the production behavior of firms
during the periods of boom and recession respectively. [2.5+4.5]=7
3 “Micro Economics is the integration of economic theory with business
practice for the purpose of facilitating decision-making by the management.”
Explain. It will be appreciated if you can cite few examples from the practical
world. 7
4 Distinguish between the following:
a) Break-even point vs Shut-down point
b) Profit maximization vs Sales maximisation [3.5+3.5]=7
5 ‘Bread Basket’ of India in a dilemma [6+6]=12

Travelling through the state of Punjab, one is surprised at the progress the
state has made in field of agriculture. As Ukraine is called the bread Basket of
the world, so is Punjab, the bread basket of India.
In order to access the impact of the new agricultural policy of the government,
whereby the govt. wants to completely do away with the subsidy program in a
phased manner, a team of economists visited Punjab to review the situation by
talking to farmers.
A sample of 200 farmers was taken from the very rich, rich, upper middle
class and middle income groups. While their reactions to questions varied to a
lesser or greater extent, one statement was made unanimously which surprised
the study team.
Every farmer, who owned any land, said he would prefer a year when
everybody had a bad crop instead of a bumper crop. The farming community
went ahead to elaborate by saying, “if a mild disaster falls on all, of us it is not
a disaster, but as a boom as we actually become richer”. To this a wealthy
farmer added, “A large volume of crop cannot fetch us the revenue which a
small can.”
Working out the logic of their argument, economists realized that an
individual farmer is a ‘price taker’; and cannot affect the prevailing price;
hence the farming community determines its revenue in terms of volumes of
production. To this, some agriculturalists express surprise. Prof Tripathi
said,” for years we are doing intensive research to see how a bumper crop can
be grown, and here we get to hear that farmers prefer scarce production.” Yet
another scientist said, ‘how do these farmers earn good revenue with low
production, as there is scarcity of food production, agreed that the prices go up
but the volumes come down, how then does the farmer evaluate which is a
better situation, a low production high price or a high production low price?’
Economists in the study team agreed that in order to understand the farming
community’s logic, one had to understand the situation in more detail.
Further discussions with the farmers across earning levels revealed that the
best situation for a farmer is a good harvest in his own field and a general crop
failure, while the worst situation is a bad harvest in the farmer’s field and a
good one for everybody else. But if everyone is to enjoy the harvest, a
moderately bad harvest is preferred to a very good one.
The icing on the cake was that the farmers were highly critical of the
governments import policy regarding food grains during a food crisis. The
reason given was that the government imported food grain and made it
available to the non-farming community at a much cheaper rate. This puts
pursue on the government exchequer and harms the farming community badly.
Farmers however seemed to be very happy with the government’s policy of
buying food grains from the farmers during a bumper crop. In their words,’ the
government has to intervene when there is a bumper crop, but should not
overreact during shortages by importing cheap quality food grain.’
Economists finally agree that the farming community understands and applies
the powerful relation between price elasticity, prices and revenuer. Their
behavior revolves around this powerful relation.
Now answer the following questions:

Q1. Elaborate the concept of relation between price, price elasticity and total
revenue in the context of this case.
Q2. Based on the above concept, do you think the behavior of the farming
community is logical? Why?