Professional Documents
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Q.1) a. Explain how principal agent problem affect on firms profit or value maximization
objective.
A primary school:
Objectives
Thus, we can say that for every percentage point that gas prices increase,
the quantity of gas purchased decreases by half a percentage point.
Q.3) Explain opportunity cost, marginal cost, incremental cost and suck cost with suitable
example.
Ans. :
Opportunity Cost: opportunity cost is the cost of opportunity lost. Opportunity cost is the
cost of choosing one item of action in terms of the opportunities which are given up to
carry out that course of action. Opportunity cost is the profit lost by avoiding the best
competing alternative to the one chosen. The benefit lost is normally the net earnings or
profits that might have been earned from the rejected alternative.
Examples of opportunity cost are when the owner of a business foregoes the opportunity to
employ himself elsewhere; or a machine used to make Product X is said to have an
opportunity cost if the machine can be sold or if it can also make Product Y.
Marginal Cost : Marginal cost is an estimate of how economic cost would change if
indivisibilities in plant sizes, we are often interested in the per unit change in cost
that will be caused by a substantial change in a future output, not of a one unit
change.
Example : Transco builds 900 mm and 1,000 mm pipelines but has never considered
building 901 mm or 999 mm ones. Marginal costs involve forecasting, since they are
the differences between what was and what would have been with different outputs.
The consequence is that, even when the concept of marginal cost is completely
agreed in principle, its estimation involves far more than calculations founded upon
a set of rules.
Incremental Cost : Incremental cost is the cost associated with increasing
production by one unit. Because some costs are fixed and other variable, the
incremental cost will not be the same as the overall average cost per unit.
The cost figure can be used for a variety of economic calculations, most
notably the point at which increasing production ceases to be efficient.
A very simple example would be a factory making widgets where it takes one
employee an hour to make a widget. As a simple figure, the incremental cost
of a widget would be the wages for the employee for an hour plus the cost of
the materials needed to produce a widget.
Sunk costs are costs which cannot be recovered once they have been
incurred. Sunk costs are sometimes contrasted with variable costs, which are
the costs that will change due to the proposed course of action, and
prospective costs which are costs that will be incurred if an action is taken.
For example, when a car is purchased, it can subsequently be resold;
however, it will probably not be resold for the original purchase price. The
difference is the sunk cost.
Q.4) Explain regulatory role of RBI and state the functions of RBI.
Inflation control
Apart from the above, the RBI publishes periodical review and data
related to banking.. Finally the control of NBFCs and others in the
financial world is also assigned with RBI.
Q.5) Explain role of SEBI.