SVKMs NMIMS INDORE CAMPUS
MBA Trim 1 (Batch 2021-21)
Term End Examination
MICROECONOMICS
Max Marks: 40
Max. Time: 2 hours
Note:
1. Question paper comprises of two parts.
2. Attempt all the questions in a serial order.
2. Answer should be to the point and specific.
3. Marks are shown in parenthesis.
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Part A
Case Study: Indian Telecom sector
Early days of the telecom sector in India had 2 wholly-owned government companies – Videsh
Sanchar Nigam Limited (VNSL) for international telecommunications and Mahanagar
Telephone Nigam Limited (MTNL) for metropolitan areas in 1986. During the 1990s the
opening up of the economy led to the benefits of the telecom industry. In 1994, National
Telecom Policy (NTP) was formulated which was the first attempt to give a comprehensive
roadmap for the telecom sector in India. Telecom Regulatory Authority of India (TRAI) was
established in 1997. It was formed to act as a regulator to facilitate the growth of the telecom
sector in India. So, the ground was set, authorities and regulations were established. Scenario
witnessed around 9 GSM and 5 CDMA operators providing mobile services in 10
telecommunication circles and 4 metro cities, covering more than 2000 towns in India. Slowly
and gradually telecom sector in India diversified its portfolio and extended to internet, broadband
(wireless and fixed), cable TV, SMS, IPTV, soft switches and many more. The post-
independence era (the late 90s – 2000s) witnessed a number of players entering the market after
the government established various norms and regulations that are vital to run the sector.
▪ State-owned companies – BSNL & MTNL
▪ Privately owned Indian companies – Reliance Infocomm & Tata Teleservices.
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▪ Foreign companies like – Hutchison-Essar, BPL Mobile, Bharti Tele-Ventures, Idea
Cellular, Escotel Spice Communications, Uninor, Aircel, MTS, Etisalat, Videocon, S-Tel
and many more.
From not many sellers in the market, India was flooded with a plethora of options to choose
from. After witnessing a plethora of players in the telecom sector in India, there was a point
when new entrants found it quite difficult to make a difference and gain the market share. Tariffs
were almost the same because all the major players formed a coalition where they decided what
will be the optimal number of tariffs so that all the telecom giants are able to gain with it. When
all of us were stuck with Airtel, Vodafone, Idea, BSNL, MTNL, and others that offered a range
of services that was a bit costly (especially internet services), Reliance JIO entered the telecom
sector in India like a savage and disruptor. Before Reliance Infocomm disrupted the market, the
telecom sector in India was a monopolistic competition. Reliance JIO entered with a bang and
surprised all of us. Users of Reliance JIO not only enjoyed free unlimited calls (to any network),
but they also surfed the internet without being concerned about data limits. Internet was made
free, calling/texting was made free. The telecom sector in India witnessed a revolution. While
other players charged hefty amounts on recharges, Reliance JIO was the most affordable of all.
Initially, telecom giants didn’t care much about it but slowly and gradually problems emerged.
Almost every telecom company started to lose its market share to Reliance JIO. Telenor
(formally known as Uninor) and others after realizing that they will not be able to survive much,
they exited the market. Not only declining userbase but increasing adjusted gross revenue (AGR)
made the telecom game even more difficult. Major telecom giants like Airtel, Vodafone Idea,
Reliance Communications, Tata Teleservices & Aircel together have to pay around INR 75,802
cr to the government of India as their pending dues. Another major disruption happened when
Vodafone and Idea both merged their businesses in India. After losing their market share, and
increasing debts, the 2 of them joined hands and instead of competing against one another, they
decided to compete against Airtel and JIO. Vodafone, Idea and Bharti Airtel once reported
recording-breaking userbase has now shrunk like a crushed paper ball and it seems impossible
for them to compete against Reliance JIO. Now, after Vodafone being vulnerable, the risk of a
duopoly in the sector is higher than before according to analysts.
BASED ON THE CASE STUDY INDIAN TELECOM SECTOR ANSWER THE FOLLOWING QUESTIONS;
Q1. If the telecom firms in a monopolistically competitive market are earning economic profits
or losses in the short run, would you expect them to continue doing so in the long run? Why?
(1+3)
Q2. Suppose that, due to a successful market penetration campaign of Reliance JIO - a
monopolistic competitor, it experiences an increase in demand for its product. How will that
affect the price it charges and the quantity it supplies? Support your answer with a figure. (2+3)
Q3. How is the perceived demand curve for a monopolistically competitive firm different from
the perceived demand curve for a perfectly competitive firm? Support your answer with a figure.
(2+3)
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Q4. ‘Monopolistic competition necessarily implies presence of excess capacity’. Substantiate
your answer with respect to Indian Telecom sector. (5)
Q5. ‘If the firms under oligopoly collide, they earn only normal profits; if they collude – each
earn super normal profits.’ Support your answer through empirical evidence from Indian telecom
sector. (5)
Q6. Do you agree that Indian telecom industry currently, follows a duopoly market
phenomenon? Justify your answer enumerating key characteristics of current phase of Indian
telecom industry. (3)
Q7. Few firms in the Indian Telecom Industry are enjoying internal, as well as, external
economies of scale? Comment. (3)
Part B
Q1. From the past experience Cricket Control board in India finds that if the average cost of
ticket is Rs 50 per match, 5000 spectators turn up and for an increase of Rs 5 per ticket in
average cost they lose 5,000 spectators. On an average each spectator spends Rs 4 in buying
souvenir, etc. which is also the income of Cricket control board. The board has to issue 3,000
complimentary passes and has to spend Rs 17,000 in making arrangements. What should be the
average cost of tickets so as to maximize the profit for the board? What should be the number of
spectators expected? (3+2)
Q3. The demand for personal computers is characterized by the following:
Price elasticity = - 1.9; Cross elasticity (with software) = - 1.1; Income elasticity = + 2.1
Indicate whether each of the following statements is true or false and why: (5)
i. A price reduction for personal computers will increase both the number of units
demanded and total revenue.
ii. The cross-price elasticity indicates that a 10 % reduction in the price of personal
computers results in an 11 % increase in the demand for software.
iii. Demand for personal computers are price elastic and hence they are superior goods.
iv. Falling prices for software will definitely increase both the numbers of computers bought
and the revenue from software sales.
v. A 2% reduction in the price of personal computers would result in a 3.8% increase in
their demand
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