Topics: World Trade Organization, International trade, Decision theory Pages: 9 (2826 words) Published: November 24, 2011
Part -2

1. Define ‘Arc Elasticity’?
Arc Elasticity: The arc elasticity is a measure of average elasticity, that is the elasticity at the midpoint of the chord that connects the two points (A and B) on the demand curve by the initial and new price levels. The measure of arc elasticity is an approximation of the true elasticity of the section AB of the demand curve. The more convex to the origin the demand curve is the poorer the linear approximation attained by the arc elasticity formula.

2. Explain the law of ‘Diminishing marginal returns’.
The marginal utility refers to the change in satisfaction which results when a little more or little less of that good is consumed. The law of diminshing marginal utility says that with the increase in the consumption of a good there is a decrease in the marginal utility that person derives from consuming each additional unit of that product. 3. What is ‘Prisoner’s Dilemma’, of non cooperative game? Game theory can be used to model a wide variety of human behavior in small number and large number economic, political, and social settings. The choice settings in which economists most frequently apply game theory, however, are small number settings in which individual decisions and welfare are interdependent. In such settings, each person's welfare depends, in part, on the decisions of other individuals "in the game."

i. In Cournot duopoly, each firm's profits depend upon its own output decision and that of the other firm in the market.
ii. In a setting where pure public goods are consumed, one's own consumption of the public good depends in part on one's own production level of the good, and, in part, on that of all others. For example, after a snow fall, the amount of snow on neighborhood sidewalks depends partly on your own efforts at shoveling and partly that of all others in the neighborhood.

iii. Game theoretic treatments are less interesting in cases where there are no interdepencies. For example, a case where there is no interdependence it that of a producer or consumer in perfect competition. Here a consumer (or firm) is able to buy

4. What is ‘Third degree Discrimation’?
Third degree Discrimation market separated into two or more segments. * E.G airline s segment business & leisure
* Also called market segmentation
* Most common
* Reduces consumer surplus
* Market segments must have different elasticities of D
* MC= MR in each market
* Consumers with more inelastic D pay higher P


1.Are the problem faced by the company periodic in nature, and when would the bad period over the problems cease to persist? The problems faced by the company is periodic in nature. According to the given comprehension its clear that the company is facing problem because of the sluggishness in international and domestic market. The other reasons that tightened the situation were heavy interest rates followed by the fall of rupees against dollars. The company's financial status were healthy in the 1995-1996 and started to decline by the temporary problems in international and domestic markets The change in this worst scenario is expected to resolve when the global market reaches its normal level, along with the rehabilitation steps that were taken to tackle the financial crisis comes into effect. 2.Is there a case for shifting the business focus from the Indian marketing to export to foreign countries? Yes, the shift of focus from local market to international market is quite visible. In the current financial year the profit through export is 160.9 crores which inturn compared to the previous financial year (1994-1995) was 90% increase , in the previous financial year the company has earned just 80 crores. The foreign exchange outgo in the current year was 28% better than the previous year , where they profit 213 crore . As there was an immense increase through foreign export. The company is on track to shift its business for a better market. 3....
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