Name Revanasidha S Maroorkar

Question 1

Write your answer for Part A here.

The Phenomena which involves such joint decision making is known as collusion. Collusion is
a phenomenon in which two or more people make decisions together. Collusion occurs in an
Oligopoly market system, where a few large enterprises join together for mutual advantage,
controlling output and establishing prices. The Organization of Petroleum Exporting
Countries (OPEC) is one such organization, with 13 oil-producing member countries.

The following are the Advantages of collusion:

• Because of this phenomenon, competing advertising is avoided, allowing businesses to

concentrate entirely on production.
• Businesses and organizations collaborate with the goal of increasing profits and
lowering market competition.
• After reducing the supply of petroleum products by 9.7 million barrels, they will be
able to balance supply and demand, avoiding price decreases and the burden of
storage costs.

The following are the Disadvantages of collusion:

• Because the colluding firms/organizations function as one, new firms/organizations are

severely restricted in their entry.
• Consumers pay higher prices as a result of collusion, resulting in a decrease in
consumer surplus.
Write your answer for Part B here.

OPEC decided to cut the supply of oil because oil prices were tumbling as a result of demand
offset due to lockdowns in several nations, resulting in a big excess of oil in the markets

The desired goal was to compensate for the losses experienced as a result of the demand offset
and to further stabilize global oil prices.

The Demand Curve before and after will follow the trend as shown in figure 1. & 2.

Figure 1. (Before) Figure 2. (After)

Before the decision

As shown in Figure 1, the pandemic reduced demand, causing the demand curve to shift
leftward and the equilibrium price to fall. As a result, OPEC decided to cut supply by 9.7
million barrels per day, with the goal of stabilizing the price in the future.

After the decision

As seen in Figure 2, OPEC opted to restrict supplies in order to stabilize prices, but this
backfired, leading price to plummet quickly. As a result of the supply cut, equilibrium could
not be achieved.
Write your answer for Part C here.

OPEC is a member of the OLIGOPOLY Market Structure. It is a group of 13 countries that

have banded together to form a formal cartel with the primary goal of stabilizing and
controlling global oil market prices.

The key features of an Oligopoly Market structure are:

• Oligopoly is made up of a small number of major companies that have market

domination.
• Entry into this industry is limited since it is dominated by a small number of
multinational corporations.
• Every business in this market must adhere to the stated rates. If one firm tries to lower
its price below the established price in order to increase sales, the other firms may
respond by lowering their prices even further, resulting in a pricing war.

Question 2

Write your answer for Part A here.

As we know, Profit Maximizing condition is MC (Marginal Cost) = MR (Marginal Revenue).

So, based on ATC Curve (Figure 3.) the point wise answers are as given below –

• Answer = 92 Articles

Marginal Cost curve intersect the Marginal Revenue curve at (8,375) which means 8 no. of
Journalists were used for Profit Maximizing and a Total of 92 articles can be produced by 8
journalists (Refer data). (Refer figure 3)
• Answer = 2500 €

At Profit Maximizing condition, Average Total Cost curve will give the value of

347.83. [Profit= Marginal Revenue- Average total cost] =375-347.83=27.17 For 92

=92*27.17= 2500 €.

As we all know, MC = MR is the primary criterion for determining if a business is profitable

or not. At no point should MC exceed MR in order for a business to continue operating.
Analytically, a company can boost output until MC equals or exceeds MR. A firm will begin to
lose money once it reaches this point. This determines whether a company's fixed and variable
costs should be increased or decreased, as well as how to handle this profit-maximizing
situation in order to stay in business. We can do it visually.

The greatest output points a company can achieve is defined as the junction point of MC and
MR.

Figure 3
Write your answer for Part B here.

Company will fire 4 Journalists.

Because to the lockout, ad revenue has dropped from 375 € to 250 €, and rent has dropped
from 8000 € to 0 €.

Profit Maximizing Condition [MC=MR] We know that ATC= AFC+AVC (Average total cost
= Average Fixed cost + Average Variable Cost)

Average Fixed Cost = 0 (Rent 0 €) → ATC=AVC

In this case for a business to run profitably MC should be less than or equal to Marginal
Revenue of 250 €. At the intersection of MC & MR we will get our maximum number of
outputs i.e. 4 No. of Journalist

• New total profit is 1500€

At Profit Maximizing condition, Average Total Cost curve will give the value of 222.
[Profit= Marginal Revenue- Average total cost] →250-222=28 For 54 54X28= 1500 €.

This is the fundamental criterion for a business to run and profit at Profit Maximizing
Condition MC = MR. As a result of the lockout, the fixed cost was reduced to zero, and income
increased as well.
Question 3

Write your answer for Part A here.

A country like India will face Cyclical Unemployment as a result of such a

Pandemic for a brief period of time.

• Because a pandemic will produce a recession, demand will fall as

consumers focus more on saving and are less inclined to buy. As demand
falls, businesses/firms will be forced to lay off workers in order to make up
for the losses sustained as a result of lower sales.
• Lower demand for goods/services leads to lower demand for labor, resulting
in more workers becoming unemployed as a result of fewer jobs.

Write your answer for Part B here.

For a brief period after the Pandemic Lockdown was enacted, the country
experienced a Supply-Led Recession. It became a problem once the lockdown was
lifted and supply was restored.

Due to unemployment and market concerns, the Demand Shock is more persistent
and extended in a Demand Led recession for a longer length of time.

Reason:

• The lockdown had a disastrous effect on all economic, logistic, financial,

and manufacturing activity, resulting in the layoff of a considerable number
of workers.
• Lockdowns were implemented in a number of nations around the world,
disrupting the supply chain and resulting in a supply shock.
Write your answer for Part C here.

Aggregate demand and supply are indicators of a country's economic performance

over a short time period. The consequences of unemployment and recession on the
AD-AS in a Pandemic, such as the Covid 19, will be as follows.

• The effect of unemployment on AD-AS: Because of cyclical unemployment,

demand will be lower, causing equilibrium prices to decline. In this instance,
the AD curve will shift to the left.
• Recession (Supply Shock & Demand Shock): In the Indian economy, demand
and supply shocks will cause aggregate demand to collapse, while aggregate
supply will follow suit. The AD-AS Curve will shift to the left.

Write your answer for Part D here.

Because the recession induced by the Covid-19 Pandemic began as a Supply Led
recession and later transitioned to a Demand Led recession, the influence on the
AD-AS curve will be as follows:

Supply Shock Effect: When the pandemic-related lockdown began, all corporate
activity came to a halt, causing supply disruption. Aggregate is used in this
scenario.

The supply will be lower in the AD-AS curve, causing the AS curve to move
leftward, raising the Equilibrium Price

Demand Shock Effect: People were more concerned about saving than spending
due to unemployment, resulting in a drop-in demand. In this instance, Aggregate
Demand will be lower in the AD-AS curve, causing the AD curve to move leftward.
Question 4

Write your answer for Part A here.

To recover the Indian economy, the government should pursue an expansionary fiscal policy.
Expansionary policy aims to stimulate corporate investment and consumer spending by
injecting money into the economy, either directly or through greater financing to businesses
and consumers. The following are fiscal policy initiatives that the Indian government should
take:

• The government of India (GOI) can reduce taxes such as income tax, GST, and excise
duty (on specific items) to enhance cash flow in the economy and demand. Many
industries, such as automobiles and manufacturing, could be encouraged and demand
increased if GST rates were reduced. Tax cuts will encourage the private sector to
invest more money, resulting in additional job possibilities.
• Reduce Defense/Luxury Spending - Until the economy improves, the government of
India should reduce defense procurement, particularly that which we import. (With the
exception of salaries and pensions.)
• Enhance government investment — To raise employability, the Indian government
should increase its spending on infrastructure projects.
Write your answer for Part B here.

In a pandemic-induced recession, the RBI should utilise expansionary monetary policy to

increase liquidity in the economy. The RBI uses the Expansionary Monetary Policy to boost
the money supply in the economy by taking a variety of actions such as decreasing interest
rates and the repo rate, which serves to enhance liquidity and thus demand.

• Purchasing Government Securities – The Reserve Bank of India (RBI) should purchase
government bonds/securities on the open market so that banks (or NBFCs) have more
cash to lend to borrowers. Consumers' cash flow and purchasing power will improve
as a result of this.

• Loan Moratorium- As the lockdown began, the RBI implemented a three-month

moratorium on (later extended to six-month) EMIs on loans taken out before March
2020. Individuals such as farmers, small shop/company/MSME owners, and others
should be eligible for a one-year moratorium under the RBI's moratorium plan, so that
they are relieved of EMI payments in such a crisis when business is already down.

• The Reserve Bank of India (RBI) recently stated that the Cash Reserve Ratio (CRR)
would be decreased by one percentage point.

• Lenders were authorized to recalculate drawing power by decreasing margins and/or

reevaluating the borrowers' working capital cycle.

• The RBI further stated that such a move would not result in a downgrade in asset
categorization.