Question Bank : Managerial economics
Economics is a science of abundance and profligacy.
Utility and demand are one and same.
Resource allocation, choice making and opportunity cost necessarily relate to economics
Study of Individual Person/Firm’s economic behaviour comes under the purview of macro economics
National income and its composition is a subject matter of micro economics.
Opportunity costs and alternative cost are same.
Normal goods are price elastic and income elastic
There is no distinction between inferior goods and giffin goods
Other things remaining constant LOD states a positive relationship between price and quantity demanded
When ep = 1, TR will be maximum and MR will be zero.
Marginal refers to rate of change to total
Law of variable proportions refers to input-output relationship in the short-run.
Returns to scale and returns to factor are same.
Sunk costs are irrelevant costs.
Incremental costs refer to one additional unit and the consequent changes.
Indifference curve and equal product curve refer to consumption theory and production theory respectively.
In Perfect Competition the firm is a price maker rather than a price taker
Differentiated product is a characteristic of Perfect Competition
Kinked demand curve refers to price changes.
Q = a – b P is a non-linear demand function
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x x
The examination of economic behaviour of a firm holds the center stage in managerial economics, while analyzing the theory of the firm whether economic profit or accounting profit is discussed? Comment.
What are the broad categories of goods? Whether inferior goods are income-elastic. Give some examples of inferior goods.
Law of demand holds goods due to the operation of income effect and substitution effect. How and why?
Is there any distinction between change in quantity demanded and change in demand. Elaborate.
What are the determinants of price elasticity of demand. Discuss briefly.
Dg = - 20 + 0.24 y – 0.67Pg + 1.18 Pv – 0.50 Pe is an estimated demand function for groundnut oil. Y is income and Pg, Pv and Pe are price of groundnut oil, vegetable oil and eggs. Interpret these elasticity co-efficients in respect to demand for groundnut oil.
What are important steps that are followed in demand estimation through regression methods.
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2 3
A manufacturer has a total cost function Tc = 100 + 10x + x . Find the output which minimizes average cost, prove that at this level of output AC = MC.
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The Mc of 9th, 10th, 11th …… 20th unit is as follows
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Unit
9th
10th
11th
12th
13th
14th
15th
16th
17th
18th
19th
20th
MC (Rs)
4.10
4.10
4.11
4.13
4.16
4.20
4.30
4.50
4.90
6.30
7.00
9.00
i. At a market price of Rs. 4.50 how many units will you sell daily in order to get maximum profit.
ii. If TC of 8 units is Rs. 36/- (Rs . 4 FC) how much profit or loss accrues daily when you sell part (1) Is max. profit quantity?
iii. How much total profit or loss accrue if two more units are sold?
iv. With price at Rs. 4.11 and Total cost as in part II, would you continue to operate your plant? Why or why not?
A toy manufacturer at 60% capacity is producing 30000 units with following expenses:
Direct Labour Rs. 11,160
Direct Material Rs. 8,280
Variable & Mis. Exp. Rs. 3,960
The Total FC regardless of production is Rs. 6,000. The firm sells its product at Rs. 2/- per unit. It has received an order for 6000 units at a price of Rs. 1.45 per unit. Give your opinion supported by suitable cost and profit projections whether firm should accept or not accept the new order.
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The annual sales of a company are as follows
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Year 1998 1999 2000 2001 2002
Sales 45 56 78 46 75
(Rs 1000)
By the method of least squares, estimate the annual sales for 2003, 2005 & 2007.
2
If TC 1000+ 2x + 0.01x , P = Rs. 10 Calculate AC, MC and Profit.
For each of the following equations, determine whether demand is elastic, inelastic or unitary elastic at the given price.
Q = 100 – 4P and P = $20
Q = 1500 – 20P and P = $5
R = 50 – 0.1Q and P = $ 20
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1. Critically examine various statistical methods of demand forecasting and discuss how actually sales projections are made in SSI and large industries.
2. Modern businesses represent oligopoly market structure. What are the various models of oligopoly? How price and output determination in oligopoly is indeterminate?
3. Price and output determination under various market structures is based on simplistic assumptions such as single product, single market and precise knowledge of the demand and cost curves. What actually are the pricing practices in real world.
4. Distinguish between Law of diminishing returns and returns to scale. Why returns to scale operate? Identify some Indian industries based on returns to scale.
5. Discuss meaning and significance of investment and discuss benefit cost ratio and internal rate of return method of investment analysis.
True / False
Economics is a science of abundance and profligacy.
Utility and demand are one and same.
Resource allocation, choice making and opportunity cost necessarily relate to economics
Study of Individual Person/Firm’s economic behaviour comes under the purview of macro economics
National income and its composition is a subject matter of micro economics.
Opportunity costs and alternative cost are same.
Normal goods are price elastic and income elastic
There is no distinction between inferior goods and giffin goods
Other things remaining constant LOD states a positive relationship between price and quantity demanded
When ep = 1, TR will be maximum and MR will be zero.
Marginal refers to rate of change to total
Law of variable proportions refers to input-output relationship in the short-run.
Returns to scale and returns to factor are same.
Sunk costs are irrelevant costs.
Incremental costs refer to one additional unit and the consequent changes.
Indifference curve and equal product curve refer to consumption theory and production theory respectively.
In Perfect Competition the firm is a price maker rather than a price taker
Differentiated product is a characteristic of Perfect Competition
Kinked demand curve refers to price changes.
Q = a – b P is a non-linear demand function
[/list]
x x
Short Answer Qs
The examination of economic behaviour of a firm holds the center stage in managerial economics, while analyzing the theory of the firm whether economic profit or accounting profit is discussed? Comment.
What are the broad categories of goods? Whether inferior goods are income-elastic. Give some examples of inferior goods.
Law of demand holds goods due to the operation of income effect and substitution effect. How and why?
Is there any distinction between change in quantity demanded and change in demand. Elaborate.
What are the determinants of price elasticity of demand. Discuss briefly.
Dg = - 20 + 0.24 y – 0.67Pg + 1.18 Pv – 0.50 Pe is an estimated demand function for groundnut oil. Y is income and Pg, Pv and Pe are price of groundnut oil, vegetable oil and eggs. Interpret these elasticity co-efficients in respect to demand for groundnut oil.
What are important steps that are followed in demand estimation through regression methods.
[/list]
Problems
2 3
A manufacturer has a total cost function Tc = 100 + 10x + x . Find the output which minimizes average cost, prove that at this level of output AC = MC.
[/list]
The Mc of 9th, 10th, 11th …… 20th unit is as follows
[/list]
Unit
9th
10th
11th
12th
13th
14th
15th
16th
17th
18th
19th
20th
MC (Rs)
4.10
4.10
4.11
4.13
4.16
4.20
4.30
4.50
4.90
6.30
7.00
9.00
Answer the following
i. At a market price of Rs. 4.50 how many units will you sell daily in order to get maximum profit.
ii. If TC of 8 units is Rs. 36/- (Rs . 4 FC) how much profit or loss accrues daily when you sell part (1) Is max. profit quantity?
iii. How much total profit or loss accrue if two more units are sold?
iv. With price at Rs. 4.11 and Total cost as in part II, would you continue to operate your plant? Why or why not?
A toy manufacturer at 60% capacity is producing 30000 units with following expenses:
Direct Labour Rs. 11,160
Direct Material Rs. 8,280
Variable & Mis. Exp. Rs. 3,960
The Total FC regardless of production is Rs. 6,000. The firm sells its product at Rs. 2/- per unit. It has received an order for 6000 units at a price of Rs. 1.45 per unit. Give your opinion supported by suitable cost and profit projections whether firm should accept or not accept the new order.
[/list]
[/list]
The annual sales of a company are as follows
[/list]
Year 1998 1999 2000 2001 2002
Sales 45 56 78 46 75
(Rs 1000)
By the method of least squares, estimate the annual sales for 2003, 2005 & 2007.
2
If TC 1000+ 2x + 0.01x , P = Rs. 10 Calculate AC, MC and Profit.
For each of the following equations, determine whether demand is elastic, inelastic or unitary elastic at the given price.
Q = 100 – 4P and P = $20
Q = 1500 – 20P and P = $5
R = 50 – 0.1Q and P = $ 20
[/list]
[/list]
Long Answer Qs
1. Critically examine various statistical methods of demand forecasting and discuss how actually sales projections are made in SSI and large industries.
2. Modern businesses represent oligopoly market structure. What are the various models of oligopoly? How price and output determination in oligopoly is indeterminate?
3. Price and output determination under various market structures is based on simplistic assumptions such as single product, single market and precise knowledge of the demand and cost curves. What actually are the pricing practices in real world.
4. Distinguish between Law of diminishing returns and returns to scale. Why returns to scale operate? Identify some Indian industries based on returns to scale.
5. Discuss meaning and significance of investment and discuss benefit cost ratio and internal rate of return method of investment analysis.