MS-09 Solved Assignment

Course: IGNOU MBA (Master of Business Administration)
Session: Jan - June 2023 July - Dec

Ignou Mba MS-09 Assignments - Old Sample Answers

Q. Explain the concept of Economies of Scope.
Answer. Most businesses provide multiple goods and services; in some cases, the number of goods and services is quite large. Whereas the motivation for providing multiple products may be driven by consumer expectations, a common attraction is the opportunity to reduce per unit costs. When a venture can appreciate such cost savings, the opportunity is called an economy of scope........ A good example of scope economies arises in the banking industry. In the banking industry, scope economies may be as important as economies of scale in explaining M&A. The pursuit of these economies is one of the factors, although probably second behind economies of scale, that help explain the consolidation within the banking industry that occurred in the fifth merger wave of the 1990s........... As with economies of scale, the opportunities for economies of scope generally dissipate after exploiting the obvious combinations of goods and services. At some point, the complexity of trying to administer a firm with too many goods and services will offset any cost savings, particularly if the goods and services share little in terms of production resources or processes............

Q. Explain the concept of Economies of scale.
Answer. Economies of scale refers to the cost advantages which businesses get due to size, output, or scale of operation, with cost per unit of output usually reducing with increasing scale as fixed cost is spread over more units of output. Economies of scale are factors which trigger the average cost of producing something to fall because the level of its output increases. Therefore it might cost 30000 to generate 100 copies of a journal but only 40000 to produce 1,000 copies. The average cost in this situation has dropped from 300 to 40 a copy as the main components of cost in producing a journal are not related to the volume of journals produced.............

The 2 forms of economies of scale are as follows:
Internal. They are cost savings which accrue to a business irrespective of the industry, market or environment in which it functions.
External. They are economies which benefit a business due to the way in which its industry is organized.
Economies of Scale take place for many different reasons.
1. Specialization and division of labour: In massive scale operations employees are capable of performing more specific tasks. With the help of minimal training they can become very proficient in their task, this allows greater efficiency. One good example is an assembly line with many different jobs.
2. Technical. A few production processes need substantial fixed costs e.g. constructing a big factory. If an automobile factory was then only used on a small scale it would be very inefficient to run. By utilizing the manufacturing facility to full capacity average costs will likely be lower.
3. Bulk purchasing: If you purchase a large quantity then your average costs are going to be lower. This is due to lower transport costs and less packaging. For this reason supermarkets get lower prices from suppliers than local corner shops.
4. Spreading overheads. If a business merged it could rationalise its operational centres. E.g. it could have one headquarter as opposed to two.
5. Risk Bearing economies. Some investments are extremely expensive as well as risky, therefore only a big firm will have the ability and willing to undertake the necessary investment. E.g. pharmaceutical industry is required to take risks in creating new drugs....Get Ignou Mba MS-09 Solved Assignment Jan - June or July - Dec for 2023 ....

Q. Explain the discounting principle.
Answer. The discounting theory demands you to consider the value of a sum of money in the present day and compare it to the value of the money after some time. You should do this if you are in a situation in which you will make use of the money at a future date. The value of the future amount of cash is referred to as the present value. To obtain the present value, you will have to discount the amount of interest the money could earn if you were to place it in an interest earning account.............
The discounting principle also happens to be at play in a few forms of loans, known as discounted loans. Generally when you take a loan, you borrow a sum, then pay interest on that amount as you repay. You end up re-paying a lot more than the initial sum of the loan. With a discount loan, the total interest due on the loan is deducted from the principal in the beginning, so you get the principal minus the interest you will have to pay on the loan.