Punjab College Technical Education Course Module

PUNJAB COLLEGE OF TECHNICAL EDUCATION BADDOWAL COURSE MODULE Instructor: Ragini Khanna e mail ID- Khanna_ragini@yahoo.com Mb- 9988531999 Course: Managerial Economics (MB 105) Class: MBA I Semester: I “Managerial economics applies economic theory and methods to business and administrative decision making.” Managerial Economics is concerned with the application of economic principles and methodologies to business decision problems. In this course students will increase their understanding of economics and learn a variety of techniques that will allow them to solve business problems relating to costs, prices, revenues, profits, and competitive strategies. Students will also get a macro view about National Income, GDP, GNP, Consumption Function, Inflation, Monetary and fiscal policies. The over-riding goal of the course is to make students better decision-makers in a business or institutional context but the principles and techniques are also applicable to personal financial and economic decisions. A subsidiary purpose of the course is to sharpen analytical skills so that students will be better able to recognize and solve decision problems in different contexts. Distribution of Marks: MSE’s15First hourly5Second hourly5Presentation5Assignments10 Assignment 1 Based on Demand Forecasting Forecast the demand of any particular product with the help of a questionnaire. You can take any product of your choice. Assignment 2 Analyze any sector of the latest budget and study the trend of changes that has taken place in that particular sector in the past 3 years. Purpose- To give the students an understanding of how our economy is operating and what are the various sectors which are contributing the most to our economy. Assignment 3 Analyze in detail the latest monetary policy. Also study the various measures that have been taken by RBI to stabilize the economy. Purpose- Practically understanding the topic discussed in the class and analyzing how the theoretical concepts are actually put into practice. Activity 1 Read Economic Times!! This activity involves discussion of latest news related to economy and business. News of every Wednesday will be discussed on next Wednesday. Purpose: To inculcate the habit of reading newspaper in students. Activity 2 Group Discussion Students will be given topics related to economy and business and will be asked to discuss them in a group. ,[object Object],Case Study 1: Making Magic: the Multiplex Way The middle class of India, a virtual nonexistent entity on Independence, has gradually become more sensible, educated and demanding. The overall growth of the economy has given a tremendous thrust to the middle class, expected to grow by 5 to 10 percent annually. It has grown over 57 million by 2001-02 and is expected to cross 153 million by 2009-10. The average household income in urban India has grown at a CAGR of 5 per cent over the last decade. Not only is this, but the age profile of the Indian spenders is also undergoing a sea of changes. NCAER has identified five categories of households on the basis of income which is summarized in Table 1 below Table 1: Classification of Indian Households on the basis of Income No. of Households (In Millions) 1994-951999-20002006-07Very RichConsumingClimbersAspirantsDestitute1294848353556632246491741513 (Source: NCAER) Table 1 reveals the paradigm shift in Indian households over the last decade. The number of effective consumers is expected to exceed 600 million by 2010. This big bang consumerism in India is being seen as the driving force in the emergence of various new businesses, which aim at riding the consumer tide. Availability of easy financing schemes is another aspect of the story: owning a house, or buying a car, or going abroad on a pleasure trip is no more a distant dream to the average Indian Consumer! With the consumers’ composition gradually getting skewed towards the young, there is a greater tendency towards increased spending on consumption. A very interesting piece of information is that average Indian Household has increased its spending on movies and theatres from 1 to 4.6 per cent of its disposable income. This amazing spurt in spending on entertainment has affected the quality and delivery of films as an industry. The single screen theatres with poor maintenance and inadequate infrastructure are gradually paving way for high tech multiplexes with three to as many as eleven screens, digitalized films and Dolby surround audio system. The industry is undergoing a swing, driven by consumer behavior. Reports indicate that multiplexes account for 0.6 per cent of the total cinemas, 2.3 per cent of the total screens and have a total capacity of more than two lac seats. The average gross collection per multiplex is around Rs.5.72 crore fetching about 29 to 35 per cent of the revenue for the film industry. India’s multiplex bandwagon has spread its tentacles beyond the metros to redefine entertainment in B and C class towns. While the first phase of the growth of multiplexes was in metros, now this growth is spreading to tier two and three cities like Lucknow, Indore, Nasik, Aurangabad and Kanpur. Top multiplex players like PVR, Adlabs Films, Inox Leisures, Shringar Cinemas (Fame Multiplex), Fun Multiplex and Cinemax India are venturing to small towns across the country and redefining entertainment to the vast Indian masses. The multiplex business has rightly tapped the growth of consumerism in India as it has understood the pulse of the Indian consumer’s preference towards superior ambience, comfortable seating, air-conditioning and good quality snacks, even at the cost of paying a higher price. The average price of ticket in a conventional theatre is Rs. 15-35, while a multiplex charges on an average price of Rs. 75-350 and consumer is willing to dish out this extra amount to enjoy the “complete” movie experience, which most of the traditional theatres could not render and are thus facing the fate of near extinction. It thus promises to take the moviegoers’ experience to a whole new level and giving a new dimension to watching movies at theatres. Posers ,[object Object]

Do you think change in consumer perception in middle class has been instrumental in emergence of multiplexes? What can be the other reasons?

Observe Table 1. Which of the groups, according to you, would have demand for multiplexes?

Would law of diminishing marginal utility apply to movie watching? Will this affect the growth rate of multiplexes? Or can it be seen as a cause for establishment of multiplexes? Give argument in support of your contention.

Can multiplexes use the concept of consumer surplus for attracting more consumers? How?Case Study 2: Why Does Popcorn Cost So Much at the Movies? left0 Moviegoers aren't being gouged when they pay big bucks for popcorn, says economist Ricard Gil. Movie theaters are notorious for charging consumers top dollar for concession items such as popcorn, soda, and candy. Are moviegoers just being gouged? New research from Stanford and the University of California, Santa Cruz suggests that there is a method to theaters' madness--and one that in fact benefits the viewing public. By charging high prices on concessions, exhibition houses are able to keep ticket prices lower, which allows more people to enjoy the silver-screen experience. The findings empirically answer the age-old question of whether it’s better to charge more for a primary product (in this case, the movie ticket) or a secondary product (the popcorn). Putting the premium on the quot;
frillquot;
items, it turns out, indeed opens up the possibility for price-sensitive people to see films. That means more customers coming to theaters in general, and a nice profit from those who are willing to fork it over for the Gummy Bears. Indeed, movie exhibition houses rely on concession sales to keep their businesses viable. Although concessions account for only about 20 percent of gross revenues, they represent some 40 percent of theaters' profits. That's because while ticket revenues must be shared with movie distributors, 100 percent of concessions go straight into an exhibitor’s coffers. Looking at detailed revenue data for a chain of movie theaters in Spain, Wesley Hartmann, associate professor of marketing at the Graduate School of Business, and Ricard Gil, assistant professor in economics at University of California, Santa Cruz, proved that pricing concessions on the high side in relation to admission tickets makes sense. They compared concession purchases in weeks with low and high movie attendance. The fact that concession sales were proportionately higher during low-attendance periods suggested the presence of quot;
die-hardquot;
moviegoers willing to see any kind of film, good or bad--and willing to purchase high-priced popcorn to boot. quot;
The logic is that if they’re willing to pay, say, $10 for a bad movie, they would be willing to pay even more for a good movie,quot;
said Hartmann. quot;
This is underscored by the fact that they do pay more, even for a bad movie, as is seen in their concession buying. So for the times they’re in the theater seeing good or popular movies, they’re actually getting more quality than they would have needed to show up. That means that, essentially, you could have charged them a higher price for the ticket.quot;
 Case Study 3: Microeconomics: Wal-Mart and Monopolistic Practices QUESTION: Should Wal-Mart be considered a monopoly? I. Why Wal-Mart Should Be Considered A Monopoly: For the fifth time in six years Wal-Mart has been named the biggest company in the world. Below are some figures from CNNMoney’s section on fortune 500 (global) companies for 2007: General Merchandise Industry Revenues, profitsProfits as % of…RankCompanyGlobal 500 rankRevenuesProfits ($ millions)1Wal-Mart Stores1351,139.011,284.02Target9659,490.02,787.03Sears Holdings11453,012.01,490.04Foncière Euris20432,237.095.45Macy’s22728,711.0995.06PPR29623,191.6859.87J.C. Penney35219,903.01,153.08Marks & Spencer45816,267.51,248.19Kohl’s48715,544.21,108.7 From the July 23, 2007 issue Looking at the figures, it’s rather blatant that Wal-Mart is monopolizing. What exactly is going on? Is it legal? Is it good for America as a nation? The text book reason for why Wal-Mart is ‘successful’ is because of its ways of increasing profit and revenues by restricting output …the goal all businesses have. The not so clean reason is that the way they restrict output is by ‘rolling back’ their employee’s wages and rights, and acting as their own distributor rather than having a wholesaler. Although the latter may not seem like bad idea at first, if you take a closer look and take into consideration the fact that all the smaller businesses and local stores do not have the means of eliminating THEIR wholesalers (keeping prices up)…the general merchandise industry becomes a scary place to be in right now in a free market economy such as ours. Why would people buy something from a smaller store in their town for more money when they can walk down the street and buy the same thing at a cheaper price? This very situation is the reason Wal-Mart has in fact become a monopoly…the elimination of competition. Smaller stores selling the same products will inevitably go out of business because people will search for the smallest opportunity cost and with the big box giant stores on every corner, you just can’t beat low prices AND local availability. As for the manipulation of employee’s wages and rights, this tactic is blatantly unethical and bad for society. The average Wal-Mart employee hardly makes enough money annually to hit the poverty line which in 2001 was $14,630 and employees were making on average $13,861. ‘Associates’ were making $8.23 per hour as opposed to the average hourly rate of $10.35 for supermarket workers. This may not seem all together too bad but you must take into consideration the fact that Wal-Mart rarely lets workers work 40+ hours a week (full time) and they also do not include a healthcare plan or offer ones at affordable prices for a person working there. It’s pretty obvious that this is a problem if you read the itemized taxes on your own pay check every other week. On average, for one Wal-Mart with 200 employees taxpayers pay $421,000 a year. All of this money goes toward free and reduced lunches, section 8 housing assistance, federal tax credits and deductions for low income families, title I education funds, children’s health insurance costs, and subsidies for energy assistance. And that’s just for ONE store! The wise Jeremy Bentham once said “…It is the greatest happiness of the greatest number that is the measure of right and wrong.” Who is benefiting from the practices of this massive merchandiser? It may seem like we are paying less for our goods, but we make up for it in our taxes. All in all, Wal-Mart is a detriment to America as a nation and is illegally acting as a monopoly. The big box retailer, the biggest company in the world, needs to either be shut down due to illegal practices or start paying their employees reasonable wages because American citizens should not be the ones doing it for them (3, 2 and 4.) II. Why Wal-Mart Should Not Be Considered a Monopoly: Wal-Mart is the largest company in the world. That also makes it the largest (private sector) employer in the world! All allegations stating the big box retailer is bad to employees and makes healthcare plans unattainable are false accusations. It is a fact that 86% of the associates do indeed have health insurance and those that do not are only lacking because they chose themselves to go with Medicaid rather than with one of the company’s plans. Wal-Mart is not a monopoly, there are plenty of other general merchandisers in the industry including Target, Sears, Macy’s and J.C. Penny’s all of which have the same opportunities to work with but all of which choose to keep prices high in an effort to gain substantial profits. Wal-Mart chooses to help the people (and stockholders, many of which are associates!) by keeping goods affordable. The annual stats from 2007 show the company’s’ revenues to be $351,139 million, profits to be $11,284 million, assets to be $151,193 million and stockholders’ equity to be $61,573 million as opposed to, say, Exxon Mobile’s stats (in slot number 2) of $347,254 million in revenue, profits of $39,500 million, assets of $219,015 million and Stockholder’s equity of $113,844 million. It’s obvious from these statistics profit is not the main concern. As for having a large company in rural areas…yes, the bigger stores do tend to cause the smaller ones within a small radius to die out…but that’s the consumer’s choice and it’s mostly just due to convenience. If you travel a few miles down the road you will see Wal-Mart actually IMPROVES competition in that stores adapt and start to offer better services and goods in order to stay in the game. Not only that but for example, unlike Sears, a more catalogue based store, Wal-Mart offers so many jobs to people in the community it’s actually helping the economy flow locally. Stockholders for saw the success of Wal-Mart and invested, what would happen to them (many of them who are also employees) if the store is labeled inappropriately as a ‘monopoly?’ They made a good choice, made some money and then would have to lose it all only because some feel the store is getting too big. To conclude, I’d like to again point out that the Wal-Mart store is in business to help people and it’s because of this motto that everything has been successful (1, 2, 3, 4 and 5.) III. Conclusion: After reviewing multiple sources of research, it is plain that Wal-Mart is guilty of monopolistic practices. Why should they have an un-fair advantage over other businesses when the only reason they’ve ‘gotten ahead’ in the game is by manipulating others and basically just cheating their way through loop holes? They don’t pay their workers well enough, they need to give full time workers whose families depend on their salaries better (if they had any to begin with) heath care plans, and they need to stop contributing to the widening gap between the rich and the poor. Okay, sure 86% of the stores ‘associates’ DO have some sort of health care…but only 48% of them are insured directly by their employer whereas the other 86% are under either their spouses plan or something else. Healthcare plans are not cheap; why aren’t the other 86% (with the exception of those using the insurance of their spouse) under a plan set up for them by Wal-Mart? American tax payers should not be the ones paying the difference between a Wal-Mart employee’s salary and the money he/she should be making in order to be able to afford basic necessities. Although it seems they are trying to shape up (only because the media has it’s eye on them now) this is a matter of ethics. Wal-Mart shouldn’t need the pressure of widespread media criticism to treat workers like human beings; it is obvious by the insane amount of money they undoubtedly spend on advertising to tell America how good their ‘associates’ are really being treated that they care more about the company then their workers as people and an eye should be kept on their practices at all times. Case Study 4: India in Search of a way to Harness the Inflation “Dragon” India has seen high rates of inflation until the early nineties and faced its attendant consequences. Since mid nineties the priority for policy maker has been to bring inflation to single digit. Just like an appropriate diagnosis is must for proper treatment, similarly an inquiry into the causes of Inflation in the country is necessary. Today inflation is not merely caused by domestic factors but also by global factors. And that is natural, as the Indian economy undergoes structural changes the causes of domestic inflation too have undergone changes. The economy of India is growing at a satisfactory 8 to 9 percent a year. Therefore change in purchasing power of people is natural and when we take to national level, it is a huge amount. Given the size of population of India even a small increase of Rs.100 in the per capita income would mean an additional aggregate demand worth Rs.110 billion. This has put an extraordinary highly demand on various commodities. What has further compounded the problem is the inflow of foreign investments, which is the natural fallout of globalization. The excessive global liquidity has facilitated buoyant growth of money and credit in 2005-06 and 2006-07. For instance near-zero interest rate regime in Japan has encouraged people to borrow in Japan and invest elsewhere for higher returns. Obviously, some of this money, estimated by experts to be approximately $200 billion, has undoubtedly found its way into the asset markets of other countries in alternative investments such as commodities, stocks, real estates and other markets across continents, leveraged many times over. And India is emerging as an attractive destination. The net accretion to the foreign exchange reserves aggregates to in excess of about Rs.225, 000 crore in 2006-07. Crucially, this incremental flow of foreign exchange into the country has resulted in increased credit flow by our banks. Naturally this is another fuel for growth and inflation. Further, the sustained flow of foreign money has fuelled the rise of the stock markets and real estate prices in India to unprecedented levels. This boom has naturally led to corresponding booms in various related markets as much as the increased credit flow has in a way resulted in overall inflation. As pointed out in the Economic survey 2007-08, the current bout of inflation is caused by a multiplicity of factors, mostly monetary and global. To conclude, it must be understood that growth naturally comes with its attendant costs and consequences. The government has been aiming at keeping inflation below 5% but it keeps on deceiving now and then. A stock market boom, a real estate boom and a benign inflation in consumer goods market is an economically impossible idealism. These are the pointers to a need for a different strategy to handle inflation. Reserve Bank of India’s strategy of Market Stabilization Scheme (MSS) to dealing with excessive liquidity, the increase in repo rates to make credit over extension costly and CRR to restrict excessive money supply have limitations with such huge forex inflows. While these policies are usually intertwined and typically compensatory, one has to understand that the issues with respect to inflation cannot be subjected to conventional wisdom in the era of globalization. The government has to find out some unconventional methods of controlling inflation besides focusing on timely implementation of infrastructure projects and improving productivity to fill demand supply gap. One such measure could be revaluation of Indian rupee against dollars. Presentation Rules The students will be divided into groups of 4. The presentations will start at 9 a.m. The duration of each presentation will be 15 to 20 minutes. The preceding group will ask questions to the succeeding group and will get marks, depending upon the validity of the question being asked. The students are supposed to submit the synopsis of the material beforehand. The evaluation criteria for presentation is as follows:- Formals: 5 Presentation skills: 10 Query handling: 3 Questions: 2 Content: 10 Presentation Topics: ,[object Object]

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Punjab College Technical Education Course Module

Punjab College Technical Education Course Module

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