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JUNE 2011 EXAMINATION
eGM04
Managerial Economics
Time : Three Hours
Note :
1.
2.
3.
4.
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Maximum Marks : 100
The paper is divided in three sections: Section A, Section B and Section C.
Section A consists of 30 Multiple Choice Questions, each of 2 Marks. Examinees are required
to attempt all of them.
Section B has 10 Short Answer Type Questions, each of 5 Marks. Attempt any six.
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
(c)
Total 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
(c)
Indifference Curve 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
(c)
Price 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
(c)
Number of users
(d)
Cordinal Utility Approach
5.
Movement along the demand curve is due to change in ______________
(a)
Price of commodity
(b)
Price of substitute goods
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(c)
(d)
Supply Schedule
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
(c)
Supply Schedule
(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
(c)
Deficit
(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)
(b)
(c)
(d)
Shift in Demand
Movement in Demand
Elasticity of Demand
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
(c)
Consumer income falls
(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
(c)
The price elasticity of demand is -0.5
(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
(c)
The quantity demanded is less than the quantity supplied.
(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
(c)
Price discrimination
(d)
Free entry & exit
13.
In a perfectly competitive market agents (buyer & seller) in the market are:(a)
Price taker
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(b)
(c)
(d)
Price maker
Price dominant
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
(c)
Total 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
(c)
Exclusive knowledge of production techniques
(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
(c)
Monopolistic Competition
(d)
Oligopoly
18.
The model of monopolistic competition was given by (a)
Pigon
(b)
Cramberlin
(c)
P Sweezy
(d)
Flicks
19.
Kinked demand curve model of oligopoly was developed by –
(a)
Pion
(b)
Chamberlin
(c)
P.S Sweezy
(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
(c)
Barometric 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
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(c)
(d)
Indifference curve
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
(c)
Somen Satisfying 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
(c)
ATC
(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
(c)
The difficulties encountered in coordinating many activities of large firm.
(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
(c)
Elastic
(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
(c)
Box-Jenkin Technique
(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?
eGM04/June11/Page 4 of 5
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.
9.
Why are the firms in perfectly competitive market referred to as price takers?
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?
eGM04/June11/Page 5 of 5