FYBCOM Concepts Sem II All Module

Q. 1 a)    Define the Following                                                                                             10 Marks

                                       (Module no. I)

1) Market: Market is usually understood as a place where sellers (producers) and buyers meet                                for settling a transaction.

               Market is also defined as a group of firms and individuals that are in touch with each other                    in order to buy or sell some good

2)  Prefect Competition: Is a market situation which consists of following characteristics i.e.

            large number of  sellers and buyers, Homogeneous commodities, free entry and exit, 

           complete market information to buyers and sellers, perfect mobility of factor of production,

            no transport cost .

3) Pure competition: Is a market situation which consists of following characteristics, large 

            number of sellers and buyers, Homogeneous commodities, free entry and exit

4) Profit Maximization: Profit is maximised by a firm by maximising the difference between TR and              TC, as TR – TC = π

5) Excess Profit: Excess profit is the profit earned by a firm over and above the normal profit.

              It is also called supernormal profit.

6) Normal Profit: The normal profit is that amount of profit which keeps a person in business.

7) Shut Down Point: This point is termed as the point as starting point since the production 

                           starts at this point where TR = TVC

8) Monopoly: Monopoly is form of market where there is only one seller, selling the product

                        which are not having close substitutes.

(Module no. II)

9)Monopolistic Competition: The market in which many sellers selling different varieties of a product or a few sellers dominating  marker for either differentiated products or commodities

10) Production cost: It refers to the total expenses incurred to produce goods and services. They are in the form of form of rent, wages and salaries, interest and normal profit.

11) Selling Cost: Selling costs are incurred in market other than perfect competitive market. It aims at  promoting a commodity against its rival and it is done for promoting the sell.

12) Excess Capacity: Is the unused capacity of the difference between actual and optimum output.

13)Oligopoly: Is a market form in which there are few sellers of homogeneous or differentiated product

14) Pure Oligopoly: Is a market form in which there are few sellers of homogeneous

15) Collusive Oligopoly: it occurs when the firm work together to reduce uncertainty in the market. Firms may become involved in price fixing or cartel formation.

16) Non Collusive: This has following features such as a few large firm, entry barriers, non price           competition, product branding and differentiation and interdependence in decision making.

17) Kinky demand curve: Kinky demand curve is a curve with upper part more elastic and lower part less elastic or inelastic. 

18) Rigid Price: Price charged by a oligopolist is expected to cover full cost and also bring excess profit if possible. The price thus charged remains the same without further change.

(Module no. III)

19)               First degree price discrimination: It takes place where, each customer can be charged a different    price for a good or service. E.g. doctor charge deferent fees from different patients.

20)               Second degree price discrimination: It practiced when the total market is divided into segments and              each segment is charged a separate price

21)               Third degree price discrimination: It takes place when different prices are charged in different        markets which are located geographically at a distance so that transfer of goods by consumers from one       market to the other is not worthwhile from economic sense.

22)               Dumping: It refers to a situation where the monopolist enjoys a monopoly in the home market and   accepts a competitive price in the world market. He charges higher prices in domestic market and           accepts price in world market determined by market force.

23)                Cost Plus Pricing: It is also known as Mark up pricing. In this process firm first estimates the average          variable cost (AVC) and adds the average overhead charges to obtain fully allocated average cost. For               AC the firm adds up a mark up of cost for earning profits. m (mark up) =     where P = C (1 + m)

24)               Transfer price: The transaction of different units of goods and services between the same               conglomerates or between departments of same firm are carried out at prices known as transfer prices.

(Module no. IV)

25)               Capital budgeting: capital budgeting is a process involving planning, analysis, evaluation and         selection of the most profitable projects for investing the funds available to the firm. capital budgeting   is also known as ‘fixed asset management’ or ‘project evaluation’ or ‘project appraisal’.

26)               Pay Back Period: It is also known as ‘Pay out’ or ‘Pay off’ period. It indicates the time period           required to recover the original investment cost of the project.

27)               Principle of compounding: At 10% interest rate, Rs. 100 of today is equivalent to Rs. 110 after one   year, 121 after two years and so on, the method calculating this is known as the principle of        compounding.

28)               Principle of discounting: If the future amount, after one year, is Rs. 110 its present value is Rs. 100, at            10 % interest rate, the method calculating this is known as the principle of discounting

29)               Net Present Value: It is defined as the difference between the present value of all net cash flows and             the cost of original investment. NPV = P – C.

30)                Internal Rate of Return: The IIR method tries to find out ‘the rate of interest’ which would make the               present value of all future net cash inflows equal to the original investment.