Managerial Economics s1

JUNE 2011 EXAMINATION

eGM04

Managerial Economics

Time : Three Hours ` Maximum Marks : 100

Note :

1. The paper is divided in three sections: Section A, Section B and Section C.

2. Section A consists of 30 Multiple Choice Questions, each of 2 Marks. Examinees are required to attempt all of them.

3. Section B has 10 Short Answer Type Questions, each of 5 Marks. Attempt any six.

4. Section C consists of a Case Study, followed by two case based questions, each of 5 Marks. Attempt both the questions.

Section A

1. Increase in total utility as a result of consumption of additional unit of commodity is known as:-

(a) Average Utility

(b) Marginal Utility

(d) None of these

2. “Utility can be increased in the monetary units by the amount of money consumer is ready to sacrifice for another unit of commodity ‘was postulated in:-

(a) Cardinal Utility Approach

(b) Ordinal Utility Approach

(d) Revealed Preference Hypothesis

3. If the price of a commodity decreases, the consumer’s real income increased. The change in the real income is called

(a) Income effect

(b) Substitution effect

(d) None of these

4. Which of the following is not a reason for downward sloping demand curve?

(a) Substitution effect

(b) Income effect

(d) Cordinal Utility Approach

5. Movement along the demand curve is due to change in ______

(a) Price of commodity

(b) Price of substitute goods

(d) Supply Function

6. The tabular presentation of a series of quantities which producer would like to supply at different prices is known as

(a) Demand Schedule

(b) Demand Function

(d) Supply Function

7. ______is established at the point where the quantity that suppliers are willing and able to offer for sale is the same as the quantity that buyers are willing and able to purchase.

(a) Equilibrium

(b) Surplus

(d) None of these

8. The percentage change in the dependent variable that is caused by a one percent change in one independent variables, others are held constant, is referred to as-

(a) Shift in Demand

(b) Movement in Demand

(d) None of these

9. The demand curve for a product will shift outwards to the right when:

(a) The price of a substitute good rises

(b) Consumers expect the price of the good to fall in the future

(d) The price of the product itself falls

10. If a 10% rise in price causes a 5% fall in the quantity demanded…

(a) The price elasticity of demand is -5

(b) The price elasticity of demand is -2

(d) The price elasticity of demand is -0.2

11. The price of a good will tend to rise if:

(a) The current price is above the equilibrium

(b) The current price is below the equilibrium

(d) There is a reduction in the costs of a substitute commodity

12. Which of the following is not a characteristics of perfectly competitive market:

(a) Large number of buyers & Sellers

(b) Homogenous product

(d) Free entry & exit

13. In a perfectly competitive market agents (buyer & seller) in the market are:-

(a) Price taker

(b) Price maker

(d) Price leader

14. ______curve help the firm to decide whether to operate at loss or to shutdown their operations.

(a) Variable Cost Curve

(b) Fixed Cost Curve

(d) Marginal Cost Curve

15. Which of the following is not a characteristic of monopoly market:-

(a) Ownership of strategic raw material

(b) Large no of buyers and sellers

(d) Patent right for product

16. Charging different price from different customers for the same product is known as price discrimination.

(a) True (b) False

17. Product differentiation is a major characteristic of which market form?

(a) Perfectly competitive form

(b) Monopoly

(d) Oligopoly

18. The model of monopolistic competition was given by -

(a) Pigon
(b) Cramberlin

(d) Flicks

19. Kinked demand curve model of oligopoly was developed by –

(a) Pion

(b) Chamberlin

(d) Flicks

20. State whether true or false: “Cartels are illegal but they do operate in some markets”

a) True (b) False

21. A firm which is supposed to have a better knowledge of the prevailing market conditions and has an ability to predict the market condition more precisely than any of its competitors is known as -

(a) Dominant firm price leadership

(b) Low cost firm price leadership

(d) None of these

22. The tool used to analyze the strategic behaviour – behaviour that recognizes mutual interdependence and takes account of the expected behaviour of others.

(a) Game theory

(b) Elasticity

(d) Isocost line

23. State whether true or false: “An equilibrium in which each player takes the best possible action given the action of the other player”.

a) True (b) False

24. According to which theory/model, sales revenue maximization is the most important goal of managers:-

(a) Baumol’s theory

(b) Marris Model

(d) Cyert & March Model

25. State True or False “Marris model of managerial economics states that the firm’s aim at balance rate of growth.

a) True (b) False

26. Slope of Indifference curve

(a) MC

(b) MRTS

(d) MRS

27. The negatively – sloped part of the long run average total cost curve is due to:-

(a) Diseconomies of sale

(b) Diminishing return

(d) The increase in productivity that results from specialization

28. Cross elasticity is positive for substitutes and is negative for complementary goods.

(a) True (b) False

29. The demand function is given by P=15-0.00025Q. At P=12, the demand is

(a) Unitary elastic

(b) Indeterminate

(d) Inelastic

30. A method of forecasting from past data by taking time as the independent variable effecting demand.

(a) Time series forecasting

(b) Trend Projection

(d) Delphi Method

Section B

1. Write short note on kinked demand curve model.

2. Why is the concept of elasticity of demand of interest to businessmen?

3. Why is long run average cost curve referred to as planning curve?

4. Explain the relationship between TP, MP, AP curve and their stages of production.

5. Explain the concept of price discrimination? What are the necessary conditions for price discrimination to be possible?

6. Define managerial economics.

7. Explain the Baumol’s model of sales revenue maximization.

8. Why are the firms in perfectly competitive market referred to as price takers?

9. Differentiate between risk and uncertainty.

10. What do you think should be important variable considered while estimating the demand for petrol and why?

Case Study: Problem: Highway Blues

Ratan Sethi opened a petrol-pump cum retail store on Delhi – Agra Highway about two-hour drive from Delhi. His store sells typical items needed by highway travelers like fast foods, cold drink, chocolates, hot coffee, children’s toys etc. He charges higher price compared to the sellers in Delhi, yet he is able to maintain brisk sales – particularly of “Yours’ Special Pack” (YSP) consisting of soft drink in a disposable plastic bottle and a packer of light snacks. The Highway travellers prefer to stop at his store because, while their cars wait for with some other item in the store). Each year he could substantially enhance his sales by providing Special Summer Price on YSP which is almost half of its regular price.

Last year while returning from Delhi, Ratan found that a new, big and modern grocery shop has come up 15 kms from Delhi on the National Highway. It has affected his sales but only marginally. But last month another large convenience store has opened just 5 km away from his store. He knows that the challenge has come to his doorsteps and he expects to be adversely affected by the existence of these two stores. He needs to meet this challenge and decides to use the pricing strategy which he has been using quite effectively till recently. He now permanently reduces the price of YSP to half of its existing price. But at the end of the year Ratan finds that his sales in general and of YSP in particular had declined by 20 percent.

Q1. Where has Ratan Sethi gone wrong?

Q2. If he was a managerial economist, how do you think he would have handled the situation?

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