Managerial Economics
Question 1: Distinguish between the following:
(i) Industry demand and Firm (Company) demand,
(ii) Short-run demand and Long run demand,
(iii) Durable goods’ demand and Non-durable goods demand.
Question 2: What are the problems faced in determining the demand for a durable good? Illustrate with example of demand for households refrigerator or television set.
Question 3: Analyse the method by which a firm can allocate the given advertising budget between different media of advertisement.
Question 4: What kind of relationship would you postulate between short-run and long-run average cost curves when these are not U-shaped as suggested by the modern theories?
Question 5: How do demand forecasting methods for new products vary from those for established products?
Question 1: What are the different methods of measuring national income? Which methods have been followed in India?
Question 2: What do you understand by the investment multiplier? In what way does it defend the policy of public works on the part of the state during business depression?
Question 3: Discuss the various phases of business cycle:
(i) Are cyclical fluctuations necessary for economic growth?
(ii) Suggest appropriate fiscal and monetary policies for depression.
Case Study
Please read the case study given below and answer questions given at the end.
Electron Control, Inc., sells voltage regulators to other manufacturers, who then customize and distribute the products to quality assurance labs for their sensitive test equipment. The yearly volume of output is 15,000 units. The selling price and cost per unit are shown below:
Selling price $200
Costs:
Direct material $35
Direct labour 50
Variable overhead 25
Variable selling expenses 25
Fixed selling expenses 15 150
Unit profit before tax $ 50
Management is evaluating the alternative of performing the necessary customizing to allow Electron Control to sell its output directly to Q/A labs for $275 per unit. Although no added investment is required in productive facilities, additional processing costs are estimated as:
Direct labour$25 per unit
Variable overhead$15 per unit
Variable selling expenses $10 per unit
Fixed selling expenses $100,000 per year
Question:
1. Calculate the incremental profit Electron Control would earn by customizing its instruments and marketing directly to end users.
1. Econometrics is
a. A modern name for economics
b. A specialized branch of economics which applies the tools of statistics to the economic problems
c. A branch of economics which combines macroeconomic principles with welfare economics
d. A branch of economics which combines microeconomic principles with international trade
e. A specialized branch of economics which describes neo-classical microeconomics
2. Which of the following comes under the broad definition for factors of production?
a. Technology
b. Obsolete machinery
c. Innovations
d. Capital
3. Which of the following statements is true?
a. When the supply increases, both the price and the quantity will increase.
b. When the supply increases, the supply curve shifts towards the left
c. A shift in the supply curve towards the right results in a fall in the price
d. A decrease in the quantity supplied results in shifting of the supply curve towards the left.
e. An increase in the quantity supplied leads to a fall in the price resulting in the shifting of the supply curve towards the left.
4. Which of the following statement(s) is/are false?
a. If the demand falls, the price will fall.
b. As the price rises the quantity demanded will fall.
c. If demand rises, the demand schedule shifts to the left.
d. Both (a) and (b) above.
5. Which of the following statements is false?
a. An increase in tax will affect the customers more than the producers if the supply schedule is inelastic.
b. An increase in tax will affect the customers more than the producers if the demand schedule is inelastic.
c. An increase in tax will affect the customers less than the producers if the supply schedule is inelastic.
d. An increase in tax will affect the customers less than the producers if the demand schedule is inelastic.
e. Both (a) and (d) above.
Ans-e
6. Which of the following statements is true?
a. Elasticity of demand is constant throughout the demand curve.
b. Elasticity of demand increases as one goes down the demand curve.
c. Elasticity of demand decreases as one goes down the demand curve.
d. The slope of the demand curve equals its elasticity.
7. For complementary goods, the cross elasticity of demand will be
a. Zero.
b. Infinity.
c. Positive, but less than infinity.
d. Negative.
8. When the income elasticity of demand for a good is negative, the good is
a. Normal good.
b. Luxury good.
c. Inferior good.
d. Giffen good.
9. If both income and substitution-effects are strong, this region of the demand curve must be
a. Relatively price elastic.
b. Relatively price inelastic.
c. Unit-elastic.
d. Perfectly inelastic.
10. If a good has close substitutes,
a. Its demand curve will be relatively elastic.
b. Its demand curve will be relatively inelastic.
c. Its demand curve could be unit-elastic.
d. Either (a) or (c).
11. The demand for most products varies directly with the change in consumer income. Such products are known as
a. Normal goods.
b. Prestigious goods.
c. Complementary goods.
d. Inferior goods.
12. Which of the following statements is true with regard to price elasticity of demand?
a. Elasticity remains constant throughout the demand curve.
b. Elasticity increases with increase in quantity demanded.
c. Elasticity increases as the price decreases.
d. Elasticity is equal to the slope of the demand curve.
13. Which of the following goods can be considered substitutes?
a. Pen and Paper.
b. Car and Petrol.
c. Bread and Butter.
d. Tea and Coffee.
14. Which of the following statements concerning indifference curves is true?
a. An indifference curve is the locus of points describing proportional price levels of the two goods.
b. Indifference curves pre-suppose the measurement of total utility and marginal utility.
c. An indifference curve is the locus of points representing various combinations of two goods about which the consumer is indifferent.
d. Indifference curve pre-suppose the validity of “the law of diminishing returns”
15. If a change in all inputs leads to a proportional change in the output, it is a case of
a. Increasing returns to scale
b. Constant returns to scale
c. Diminishing returns to scale
d. Variable returns to scale
16. Isoquants are
a. Equal cost lines
b. Equal product lines
c. Equal revenue lines
d. Equal total utility lines
17. When average product is highest
a. Total product is maximum
b. Marginal product is maximum
c. Marginal product is zero
d. Marginal product is negative
18. If marginal product is negative, it means that the
a. Total product is at maximum
b. Average product is at maximum
c. Average product is falling
d. Average product is negative
19. Which of the following curves is called envelope curve?
a. Long run total cost curve
b. Long run average total cost curve
c. Long run marginal cost curve
d. Long run average variable cost curve
20. Which of the following costs remain constant as the output increases?
a. Marginal cost
b. Average variable cost
c. Average fixed cost
d. None of the above
21. In perfect competition, a firm maximizing its profits will set its output at that level where
a. Average variable cost = price
b. Marginal cost = price
c. Total cost = price
d. Average fixed cost = price
22. Which of the following curves resembles supply curve under perfect competition in the short run?
a. Average cost curve above breakeven point
b. Marginal cost curve above shut down point
c. Marginal utility curve
d. Average utility curve
23. Which of the following is not a feature of perfect competition?
a. Large number of seller and buyers
b. No one is large enough to influence the market price
c. Homogeneous products
d. A horizontal demand curve
24. In the long run, a perfectly competitive firm earns only normal profits because of
a. Product homogeneity
b. Large number of seller and buyer in the industry’
c. Free entry and exit of industry
d. Both (b) and (c) above
e.Both (b) and (c) above
25. The horizontal demand curve for a firm is one of the characteristic features of
a. Oligopoly
b. Monopoly
c. Duopoly
d. Perfect competition
26. A perfectly competitive firm can increase its sales by
a. Reducing the price
b. Increasing the price
c. Increasing the production
d. Increasing the expenditure of advertisement
27. Which of the following is not a source of market imperfection?
a. Technology
b. Size of the firm
c. Product differentiation
d. Availability of resources
28. The maximum profit condition for a monopoly firm is
a. Total cost should be minimum
b. Total revenue should be maximum
c. Marginal revenue is equal to marginal cost
d. Quantity should be maximum
29. “Four-firm concentration” refers to
a. The number of firms in an industry
b. The four largest firm in four different and important industries in an economy
c. The number of industries in an economy which have only four firms
d. The percent of the total industry output that is accounted for by the largest four firms
30. Market inefficiencies can come from
a. Externalities
b. Monopolies
c. Imperfect information
d. All of the above
31. A monopolist who faces a negatively sloped demand curve operates in the region where the elasticity of demand is
a. Less than 1
b. Equal to 1
c. Greater than 1
d. between 0 and 1
32. In which of the following market structures the entry is least difficult?
a.monopolistic competition
b. oligopoly
c. duopoly
d. regulated monopoly
33. Which of the follow is false in a monopolistic competition?
a. Each firm could be market leader in its product segment
b. Identical products
c. Easy entry and exit
d. Price of the competitor is the benchmark price
34. The term “differentiated product” denotes
a. Different products in similar packets
b. Different products
c. Same product used in different applications
d. Different products used by a differentiated set of people
35. Which of the following is common feature in both a monopolistic competitive market and oligopoly market?
a. Product differentiation
b. Interdependence among member firms
c. Kinked demand curve
d. Entries blocked
36. The term “collusion” refers to
a. A situation in which government sets prices with the market leader in oligopoly
b. A situation in which government jointly sets prices with the small players in an industry in the larger interest of the society
c. A situation in which all firms in an industry decide the price and output
d. A situation in which two powerful groups in an industry hand with government to rule the industry
37. Which of the following does not likely to lead to the failure collusive oligopoly?
a. Secret price cutting
b. More number of firms
c. Undifferentiated products
d. Rapidly changing technology
38. Price leadership refers to
a. Pre-emptive pricing made possible by the learning curve
b. A form of price collusion
c. The maintains of a monopolistic price
d. Cut throat competition
39. A cartel is
a. A group firms which get together and make joint price and output decisions to maximize joint profits
b. Form of tacit collusion
c. Type of oligopoly in which curve is kinked
d. Duopoly
40. A zero-sum game is one in which
a. The gain of one player equals the loss of another player
b. The gain of one player will not equal the loss of another player
c. The maximin equals the minimax
d. The equilibrium and the dominant equilibrium are the same
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University: AMITY Year: 2015