Documenti di Didattica
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PART A
Descriptive Type Question
Question 1: "Managerial Economics is an integration of economic theory with business practices
for the purpose of facilitating decision making and forward planning by management". Discuss.
Question 2: How does economic theory contribute to managerial decisions?
Question 3 Distinguish between the following: (i) Industry demand and Firm (Company)
demand,: (ii) Short-run demand and Long run demand, and: (iii) Durable goods' demand and
Non-durable goods demand.
Question 4: Economics can be defined as the study of allocation of scarce resources among
competing ends. Discuss.
Question 5: What are indifference curves? Explain the consumers' equilibrium under the
assumptions of ordinal approach.
Question 6: State the relationship between elasticity of demand, total revenue, average revenue
and marginal revenue. How does demand elasticity influence pricing decisions of a firm?
Question 7: What is importance of Demand Forecasting? Explain any two ways in which
demand is generally forecasted.
Question 8: What are Isoquants and Isocosts? Explain graphically the criteria for lease cost
combination of inputs.
Question 9: What are the essential features of monopoly? Can a monopolist incur losses in the
short run? Why does a monopolist produce sub-optimal output in the long run? Is monopoly
socially desirable in India?
Question 10: Explain the concepts of returns to scale and returns to a factor.
Question 11: Explain the relationship between MC, AC, AVC, AFC and TC with the help of
diagrams. What is the equilibrium condition in the long run in perfect competition?
Question 12: Explain the following a.) Fixed and variable cost |b.) Indifference curves |c.) Law of
diminishing marginal returns | d.) Factors influencing demand of a durable commodity
Question 13: Explain the law of demand. Briefly discuss the exception to the law of demand.
Question 14: Expain the various components of demand function.
Question 15(i): Given the demand function Qd = 12 p |a) Find the demand and revenue
schedules. |b) Find the MR when P - 10, 6 and 2.
Question 15(ii): Distinguish between linear and non linear demands functions.
Question 16: Explain the trend projection method of demand forecasting?
Question 17: Explain the concepts of return to scale and returns to a factor.
Question 18: Explain the following:- a) Opportunity Costs | b) Fixed Costs |c)Social and Private
Costs |d) Sunk Costs
Question 19: Explain the relationship among the average total cost marginal cost and average
variable costs.
Question 20: 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 21: Analyse the method by which a firm can allocate the given advertising budget
between different media of advertisement.
Question 22: 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 23: How do demand forecasting methods for new products vary from those for
established products?
Question 24: What are the different methods of measuring national income? Which methods
have been followed in India?
Question 25: 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 26: Discuss the various phases of business cycle:
(i)
Are cyclical fluctuations necessary for economic growth?
(ii)
Suggest appropriate fiscal and monetary policies for depression.
Question 27: Why does the demand curve have negative slope? What are the exceptions to the
law of demand?
Question 28: What is elasticity of supply? Discuss the determinants of elasticity of supply.
Question 29: Make a comparative estimate between the returns to scale and economies of
scale.
Question 30: What are the features of perfect competition? Explain the long run equilibrium of a
firm under perfect competition.
Question 31: What are the causes of business cycles? What measures should be taken to
control recession in an economy?
Question 32: Explain the usefulness of the concept of national income in analyzing the
aggregate behaviour of the economy.
Question 33: What factors give rise to monopoly? Why does a monopolist earn supernormal
profits in the long run?
Question 34: Examine the concept and relationship of Total, Average and marginal costs with
the help of suitable diagram.
Question 35: Differentiate and elaborate the concepts of returns to scale and law of variable
proportions.
Question 36: Why is demand forecasting essential? What are the possible consequences if a
large scale firm places its product in the market without having estimated the demand for its
product?
Question 37: Discuss the various steps involved in a managerial decision making process.
Explain, in detail, any two group decision making techniques.
Question 38: Why a firm is price taker and not a price maker under perfect market conditions?
Question 39: Profit maximization is theoretically the most sound but practically unattainable
objective of business firms. In the light of this statement critically appraise the Baumol's sales
revenue maximization theory as an alternative objective of the firm.
Question 40: Distinguish between skimming price and penetration price policy. Which of these
policies is relevant in pricing a new product under different competitive conditions in the market?
PART B
Case Study 1
DEMAND FORECASTING FOR M/s BENGAL CABLE COMPANY
The market research department of M/s. Bangal Cable Company, Kolkota was
entrusted with forecasting the demand for cables of the company. It was felt that the
demand for cables is considerably influenced by the pace of industrialization, power
development and building activity. Cables are used for different purpose such as power
transmission and industrial and house wiring. Bengal Cable Company was exclusively
engaged in the manufacturing of cable required by industry and housing. While many
factors such as the rate of building activity purchasing power, etc. are important in
determining the demand for cables, it was felt that most of the demand for cables can
be explained in terms of the growth of power consumption in the country. As cables are
a must for industry and building the price factor was not considered as significant
variable in determining the demand for cables. After all this products has no substitute.
The market research department of M/s Bengal Cable Company, Kolkata, developed a
model relating all India cable sales (industrial and housing cables) to the peak demand
for power in the country. The analysis based on time series data had shown a strong
positive correlation between all India cable sales and the peak demand for the
corresponding year. The estimating equation was as follows:Yt. = 1173 + 28.5 Xt.
Where Yt. = annual cable sales (in thousand coils) for all India in year t
Xt. = peak demand in million K.W. in year t
r2 = 0.94
The Central Electricity Authority of the Government of India has estimated the peak
demand for the year 2004 as 98.5 million K.W., taking into account likely industrial and
building growth and the availability of power on an all India basis. As there were no
marked seasonal fluctuation, it was considered proper to assume uniform monthly cable
sales throughout the year. It was estimated that Bengal Cables market share in 2004
will be about 20 per cent.
Question 1. Find out the all India cable demand for the year 2004 and monthly
estimated sales of Bengal Cable Company.
Question 2. The Price factor was not considered important in forecasting all India
demand for cables. Will the same be true in estimating demand for the company's
cables?
Question 3. Suppose the market share of the company during the previous two years
was 10 and 15 percent respectively, was the company justified in assuming the market
share as 20 percent?
Case Study 2
DEMAND FORECATING FOR CABLES
The market research department of M/s. Bengal Cable Company, Cacutta was
entrusted with forecasting the demand for cables of the company. It was felt that the
demand for cables is considerably influenced by the pace of industrialization, power
deveopment transmission and industrial and house wiring. Bengal Cable Company is
exclusively engaged in the manufacture of required by industry and housing.
While many factors such as the rate of building activity purchasing power, etc. are
important in determining the demand for cables, it was felt that most of the demand for
cables can be expained in terms of the growth of power consumption in the country.
Since for industry and buildings, cables are a must, the price factor was not considered
as significant variable in determining the demand for cables. After al this product has no
substitute.
The market research department of M/s Bengal Cable Company, Cacutta, deveoped a
model relating al India cable sales (Industrial and housing cables) to the peak demand
for power in the country. The analysis based on time series data has shown a strong
positive correlation between al India cable saes and the peak demand for the
corresponding
year.
The
estimating
equation
is
as
follows
:Yt
=
1173
+
28.5
Xt
Where Yt = annual cable sales 9in thousand coils) for al India in year t
Xt
=
peak
demand
in
milion
K.W.
in
year
t
r2= 0.94 The Central Electricity Authority of the Government of India has estimated the
peak demand for the year 2004 as 98.5 milion K.W., taking into account likely industrial
and building growth and the avaiability of power on an al India basis. As there are no
marked seasonal fluctuation, it is considered proper to assume uniform monthly cable
saes throughout the year. It is estimated that Bengal Cables market share in 2004 will
be about 20 percent.
Question 1. Find out the al India cable demand for the year 2004 and monthly estimated
saes of Bengal cables Company.
Question 2. The price factor was not considered important in forecasting al India
demand for cables. Will the same be true in estimating demand for the company's
cables?
Question 3. Suppose the market share of the company during the previous two years
was 10 and 15 percent respectively. Was, therefore the company justified in assuring
the market share as 20 percent?
Case Study 3
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 labor 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 labor $25 per unit
Variable overhead $15 per unit
Variable selling expenses $10 per unit
Fixed selling expenses $100,000 per year
Question A. Calculate the incremental profit Electron Control would earn by customizing
its instruments and marketing directly to end users.
Case Study 4
Mc Donalds holds nearly 30 percent share of $65 billion US restaurant business and 46
percent of its $2.6 billion burger business. It serves more than 22 million customers per
day and with sales of nearly $15 billion it dwarfs its competitors. After nearly three
decades of double digit gains, however, domestic sales at Mc Donalds have been
growing slowly since 1986 as a result of higher prices, changing tastes, slow growth of
the domestic economy, demographic changes, and increased competition from other
fast food chains and other forms of delivering fast foods.
Price increase at Mc Donalds exceeded inflation in each year since 1986 and in 0 of the
last 17 years. The average check at McDonalds is now $4 a far cry from the 15cent
hamburger on which Mc Donalds got rich and sent customers streaming to lower pricing
customers. Concern over cholestrol and calories, as well as slowing down of growth of
the economy and in personal incomes have also reduced growth. In addition the
proportion of 15 to 29 year olds (the primary fast food consumers) in the total population
has shrunk from 27.5 to 22.5 percent during the past decade. Increased competition
from other fast food chains, and other fast food options (pizza, chicken tacos and so on)
frozen fast foods, mobile units and the vending machines have also slowed the growth
of Big Macs.
Mc Donalds did not sit idle and tried to meet its challenges head on by introducing a
value menu in 1990 with small hamburgers selling for as little as 59 cents(down from
89 cents) and a combination of burger, French fries, and soft drinks for as much half as
off. IN response to the increased public concern about cholestrol and calories, Mc
Donalds began publicizing the nutritional content of its menu offerings, substituted
vegetable oils for beef tallow in frying French fries, replaced ice cream with low fat
yoghurt, introduced bran muffins and cereals in breakfast menu, and even
(unsuccessfully) introduced Mac Lean Deluxe a new reduced fat, quarter pound
hamburger on which Mc Donalds spent from $50 to $70 to develop and promote.
Furthermore, in response to increased competition from frozen foods, mobile units, and
vending machines, an increasing number of Mc Donalds franchises have drive
throughs from which they now generate almost half their business. Mc Donalds is also
expanding very rapidly abroad. When it faces much less competition and where there is
much more room for growth.
Questions
1. How are sales of burgers related to determinants of demand?
2. What is value Menu ?
3. Do you think a decrease in price by 30 cents was a step in right direction?
Case Study 5
Michael Wolfson, a computer programmer had a decent job with the financial
powerhouse Bear, Steams & Co. Now, he refurbishes computers at the basement in his
house and sells it through e-bay. He plans to join as a school teacher. Michael lost his
job in 2003. He was told that his job is being outsourced to India. Paul Schwartz, a
mainframe programmer, who was earning $ 80,000 a year was told that his services
were no longer required. He suspects that his job has been outsourced to India.
There is growing dissent among the Americans against the increasing practice of
outsourcing. It has become an electoral issue in the coming presidential elections in the
US. The Democratic candidate, John Kerry has made it an emotive issue, despite
economists trying to portray the positive aspects of outsourcing. There are numerous
reasons for the growing apathy towards outsourcing. The prevailing economic situation
and the increasing joblessness in the US have added fuel to the fire. However, many
analysts feel that joblessness in the US is cyclical in nature resulting from the recession
of 2001 and hence, a recovery will create job opportunities.
Moreover, according to the U.S.-India Business Council, the increasing unemployment
is also due to corporate restructuring and just a quarter of the job loss is due to
outsourcing. Since, the beginning of 2001, the real job loss in US is estimated to be 2.3
million. In comparison, the actual job loss due to outsourcing is estimated to be only
200,000. Thus, it can be said that there are various other reasons for joblessness in the
US. The outcry against outsourcing seems to be driven more by politics rather than
economics.
Outsourcing forms a small proportion of the jobs that are regularly churned in the US
economy. On an average, 24 million jobs are churned in the US every month. In the
process, resources are allocated, for more productive purposes. To come out of the
recession and raise the standards of living, higher productivity seems to be the only
solution. The debate on outsourcing gathered momentum only in the recent past. A
study by Forrester, a research group, in the year 2002, brought the issue into limelight.
The report claims that by 2015, 3.3 million white-collar jobs in the US would be
transferred to countries like India.
The Economics of Outsourcing
But is outsourcing so bad for the US economy? Gregory Mankiw, professor of
economics at the Harvard University and head of President Bush's Council of Economic
Advisers, recently told presspersons that outsourcing of jobs is in better interest of US.
According to him, outsourcing lowers the cost for consumers, making the corporations
more efficient. There were a series of articles in The Economist, highlighting the
advantages of outsourcing.
There are many influential groups in the US who are perturbed by the recent outcry
against outsourcing. Says Charles E Morrison, President, East West Center, a US
based think tank, "Off-shoring is not an economic problem, but an economic
opportunity". Many analysts in the US feel that anti off-shoring bills in the US would
prove to be ineffective. Similar views were echoed by Michael T Clark of US-India
business council. He says that, "Jobs lost to off-shoring were less than a quarter of all
jobs lost in the US in 2002. The rest were lost due to corporate restructuring. The
current debate in the US on off-shoring is informed by lack of facts".
In an article, "Why Your Job Isn't Moving to Bangalore" in the New York Times, Jagdish
Bhagwati, a senior fellow at the Council on Foreign Relations and professor at Columbia
University writes that the panic and furor over outsourcing is completely unwarranted.
He further says that no jobs are being taken away from America. He says that the affect
of changes in technology is being felt in the labor intensive industries. According to him,
the loss of jobs in the US is due to technological changes.
Professor Bhagwati is also critical about politicizing the whole issue. He says that
outsourcing will strengthen the competitiveness of the US companies. Firms ignoring
the cheaper supplies would lose out. Professor Bhagwati further says that outsourcing
service jobs is nothing different from importing of labor-intensive textiles and other
goods. According to him, all empirical studies in the US over the last two decades
suggest that wage stagnation in the manufacturing industry is more due to automation
of the processes, not the cheaper imports. The same is applicable to service industry as
well. Jane Linder of Accenture's Institute for Strategic Change says that companies
outsourcing the traditional back-office work have more control and discipline over their
operations. Moreover, employees of the company can concentrate on framing
strategies. Further, outsourcing also results in greater efficiency and lowering costs.
This allows companies to offer better services to customers. A study done by McKinsey
Global Institute reveals that for every dollar of work outsourced by the US, it gets back
$1.14 as income, and the countries to which the work is being outsourced gains 35
cents. This shows that outsourcing is a win-win situation for both the countries.
Benefits for US
0.58
Labor
0.1
0.05
Profits retained in
India
0.1
0.04
Suppliers
0.09
0.67
Central
government taxes
0.03
0.450.47
State government
taxes
0.01
1.121.14
0.33
a group of software programmers in India, to develop a package for them. The same
would have cost them several million dollars in US.
The benefits of outsourcing go much beyond the cost advantage. An article in Mckinsey
quarterly suggests that the companies need to look beyond cost savings. The article
says that "Companies are merely replicating what they do at home, where labor is
expensive and capital is relatively cheap, in countries in which the reverse is true."
Alan Greenspan, US Federal Reserve Chairman, is a staunch supporter of outsourcing.
He is of the opinion that any move to curb outsourcing of work to countries like India
and China, might give just a temporary relief. Reacting to the proposed legislations in
the US banning outsourcing, Greenspan said, "A new round of protectionist steps is
being proposed against outsourcing. These alleged cures will make matters worse".
Greenspan feels that any effort to protect US jobs through legislation would backfire.
Not all companies have taken full advantage of outsourcing. According to Harris Miller,
president of the Information Technology Association of America (ITAA), a lobby group,
so far only 3-4 % of all American companies outsource their processes. The remaining
still rests with American firms. A report published by Forrester, in December 2003, says
that 60% of the Fortune 1000 companies have a negligible or near nil presence in offshoring. Report also suggests that 40% of the work of these companies could be
outsourced. Thus, the potential for growth in outsourcing is still immense.
Advancement in the technology can give a further push to the off-shoring activity. The
inflexible architecture of the current technologies is acting as a hindrance in off-shoring,
says Simon Heap of Bain & Co, a consultancy firm. The advancement in software and
hardware would enable the companies to off-shore even small activities. Firms would be
able to off-shore the activities of the entire department, say billing of customers.
However, not everyone seems to agree with the supporters of outsourcing. Stephen
Roach, the chief economist at Morgan Stanley, says that it is only the wage difference
that is encouraging companies to outsource work to India or any other developing
country. He further says that joblessness is taking away the charm of recovery in the
US.
Many analysts also feel that companies should take some concrete steps to minimize
the affects of outsourcing. Companies should make the process of job transfers to
offshore destinations more smooth. British Telecom exhibited a process of outsourcing
that can be used as a model by other companies.
In 2003, when BT announced that it is planning to open two call centers in India, with a
capacity of 2200 people, it was criticized from all corners. It was said that BT was not
acting in a socially responsible manner. Realizing the gravity of the situation, BT
approached Sustainability, an international consultancy, specializing in business
strategy and sustainable development. The consultancy firm was asked to find whether
or not outsourcing and corporate social responsibility (CSR) co-exist.
Sustainability noted that the immediate impact of outsourcing would be job loss for the
employees, and the resulting affect on the society. The consultancy firm was of the
opinion that before outsourcing, companies should address the negative impact of
outsourcing. In order to check the negative impact of off-shoring, firms should consult
with employees, trade unions, communities and other key stakeholders. Employees
should be involved in the process of any such decision making. Sustainability also
suggested that firms should be transparent and make the employees know the services
that are being outsourced.
Firms should also make an attempt to redeploy the employees in some other
departments. This would minimize layoffs. An attempt should be made to retrain the
redundant workers. A part of the savings from off-shoring should be invested for this
purpose. As per the suggestion made by McKinsey Global Institute, 4-5% of the
resulting savings from off-shoring should be used for insurance policy for employees to
cover the lost wages.
US was one of the prime supporters of free trade. US was least bothered about the
concerns of many other developing countries when they raised their voices against job
losses as a result of the cheap exports. But, this aggressiveness seems to have
mellowed down in recent days. It always propagated that inefficient industries should be
closed. One of the primary tasks of the U.S. Trade Representative's office was to keep
a check on the world markets. It assesses the markets which are opening up and which
are getting closed as a result of high tariffs and other quantitative restrictions. Now, with
the growing efficiency of developing countries in the service sectors, many jobs in these
sectors are being transferred to developing countries (of which a major chunk is coming
to India). US is worried about the increasing joblessness but that seems paradoxical. It
hails globalization but when it comes to the developing countries trying to reap the
benefits of globalization, it raises all sorts of issues.
Recently the US government has tightened the visa norms. The number of H-1B visas
issued to Indian software programmers fell to 65,000 from 1,95,000 in 2003. Analysts
feel that this would increase outsourcing of jobs further, particularly to India. According
to Craig Barrett, the chief executive of Intel, granting of fewer visas would force the
companies to shift their jobs to countries like India, where there is no dearth of qualified
engineers.
Despite no ban from the federal authorities on outsourcing, many States have initiated
the process of putting restrictions on outsourcing government work to foreign countries.
The lawmakers in the state of New Jersey have proposed a bill that stops firms to
outsource any government related work to a foreign country. Succumbing to the public
pressure, the government was forced to bring back a helpline for welfare recipients that
was being outsourced to India. Similarly, the state of Indiana withdrew a $ 15 million
contract from an American subsidiary of an Indian IT firm. Commenting on the move,
the Indiana governor said that contract was not in tune with Indiana's vision of providing
better and more job opportunities to local companies and workers. However, analysts
feel that these decisions have been influenced by political pressure in the backdrop of
coming presidential elections in the US.
The Indian Response
The Indian BPO industry is not taking the outcry against outsourcing in the US
seriously. Indian BPO firms are no longer just call centers. Their activities now cover
marketing and knowledge based services. These companies are now aspiring to
become strategic partners for US companies. There is a sudden spurt in the number of
venture capitalists willing to invest in different areas. Though, some software companies
can't hide their concern over the legislations banning government related off-shoring in
the long-run but, for now they are clear that, these legislature will have negligible effect
on the current contracts with the private companies. Reacting to the whole issue,
Narayana Murthy, Chairman and Chief Mentor of Infosys said that there is no issue to
worry about. He termed the outcry as normal. He suggested that rather than getting
worried and agitated, Indians should put forward their point of view and explain the
advantages of off-shoring. He said that the present uncertain economic situation is
responsible for the concern over the job losses in the US.
Many analysts feel that the opposition to outsourcing may not end with the US
presidential elections. With many of the American States, coming out with legislations
banning government contracts to other countries, the issue of off-shoring is going to be
alive. Conditions for off-shoring may become favorable with the improvement in the
performance of the US economy.
Question for discussion:
Que. Give your opinion on outsourcing and its impact on the prospects of growth
of the economy of home Nation and host nation.
Guidelines for the answer: Discuss the issue in the perspective of opportunity and
threats faced by developing and developed nations.
PART C
Multiple Choice Question Set 1
1. In order to maximize profit, the firm follows:(a). Incremental concept
(b). Equi-marginal principal
(c). Discounting principe
(d). None of these
2. In choosing between beef 7 shirts, consumers increase their purchases of each until
(a). the marginal utility from the last rupee spent on one is the same as on the other
(b). the marginal utility from the last pound of beef is the same as from the last shirt
(c). the total utility from one is the same as from the other
(d). none of the above.
3. Which of the following is a fixed cost?
(a). cost of machinery
(b). wages
(c). cost of plant
(d). 'a' an c
4. In the ong run there are no
(a). fixes costs
(b). variable costs
(c). normal profits
(d). economies fiscale
19. A purely competitive firm will be willing to produce at a loss in the short run
provided.
(a). the oss is no greater than its variable costs
(b). the oss is no greater than its marginal costs
(c). the oss is no greater than its fixed costs
(d). price exceeds marginal costs
20. The demand curve faced by a pure monopolist
(a). is more elastic than that faced by a single purely competitive firm
(b). has the same elasticity as that faced by a single purely competitive firm
(c). is less eastic than that faced by a single purely competitive firm
(d). may be either more or less elastic than that faced by a single purely competitive
firm.
21 A pure monopolist
(a). always realizes an economic profit
(b). will realize an economic loss if MC intersects the down sloping portion of MR
(c). will realize an economic profit if ATC exceeds MR at the equilibrium output.
(d). Will realize an economic profit if price exceeds ATC at the equilibrium output.
22. In the short run, a pure monopolists profits.
(a). will be zero
(b). are always positive
(c). may be positive, zero, or negative
(d). will be maximized where price equas average cost.
23. Price discrimination refers to
(a). the difference between the prices a purely competitive seer and a purely
monopolistic seer would charge
(b). the seling of a given product at different prices that do not reflect cost differences
(c). any price above that which is equal to minimum average total cost
(d). seling a given product for different prices at two different points in time.
24. Which of the following is not a precondition for price discrimination?
(a). the seler must possess some degree of monopoly power
(b). the seler must be able to segment the market; that is, the seer must distinguish
buyers with different elasticities of demand.
(c). The good or service cannot be resold by original buyers.
(d). The commodity involved must be a durable good.
25. If a pure monopolist is producing a level of output in excess of the MR=MC output,
(a). it will be in the interest of the firm and society to reduce output
(b). it will be in the interest of the firm and society to increase output
(c). it will be in the interest of the firm, but not necessarily of society, to reduce output
(d). the firm may, or may not, be maximizing profits.
c.
d.
e.
An increase in tax will affect the customers less than the producers if the supply schedule
is inelastic.
An increase in tax will affect the customers less than the producers if the demand
schedule is inelastic.
Both (a) and (d) above.
12. Which of the following statements is true with regard to price elasticity of demand?
a.
b.
c.
d.
e.
a.
b.
c.
d.
e.
20. Which of the following costs remain constant as the output increases?
a. Marginal cost
b. Average variable cost
c. Average fixed cost
d. Total variable cost
e. 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. Fixed cost = price
d. Average fixed cost = price
e. Total cost = price
22. Which of the following curves resembles supply curve under perfect competition in the short
run?
a. Average cost curve above break even point
b. Marginal cost curve above shut down point
c. Marginal utility curve
d. Average utility curve
e. Average variable cost 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
e. Low price
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 (a) and (b) 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. Monopolistic competition
d. Perfect competition
e. Duopoly
26. A perfectly competitive firm can increase its sales by
a. Reducing the price
b.
c.
d.
e.
market
structures
the
entry
is
least
difficult?
c.
d.
e.
maximize
4.
(a)
(b)
(c)
(d)
profit
explicit cost
implicit cost
opportunity cost
9.
(a)
(b)
(c)
(d)
11. When the law of diminishing return begins to operate, the TVC curve begins to
(a)
(b)
(c)
(d)
AVC curve
AFC curve
AC curve
MC curve
TC
TVC
Either TC or TVC
None of the above
15. A firms declining LAC curve over some ranges of output can be explained by
(a)
(b)
(c)
(d)
diminishing return
decreasing return to scale
increasing return to scale
increasing costs
TC = TC
TC exceeds TR by the greatest amount
TR exceeds TC by the greatest amount
It is at the break-even point
(c) horizontal
(d) any of the above
21. MR for the perfectly competitive firm
(a)
(b)
(c)
(d)
22. In the marginal approach, the best level of output for a perfectly competitive
firm is the output at which
(a)
(b)
(c)
(d)
MR or P = rising MC
MR or P = falling MC
AC is lowest
AVC is lowest
there is a single seller of a commodity for which there are no close substitutes
there is a single seller of a commodity for which there are close substitutes
there are few sellers of a commodity for which there are no close substitutes
firms can enter or leave the industry in the long run without much difficulty
negatively sloped
horizontal
positively sloped
any of the above
breaks even
makes a profit
incurs a loss
any of the above
collusion
price competition
price rigidity
price leadership
incurs a loss
breaks even
makes a profit
any of the above
32. When income elasticity of demand for an essential commodity is less than unit,
an increase in income leads to
(a) proportionate increase in demand
(b) less than proportionate increase in demand
(c) more than proportionate increase in demand
(d) no change in demand.
33.
(a)
(b)
(c)
(d)
34.
(a)
(b)
(c)
(d)
Positive
Zero
Infinite
negative
36.
(a)
(b)
(c)
(d)
38. National income differs from net national product at market prices by the
amount of
(a)
(b)
(c)
(d)
(a)
(b)
(c)
(d) None of the above
Q.10. In case of inferior goods the income elasticity is
(a) Positive
(b) Negative
(c) Zero
(d) None of the above.
Q11. An indifference curve is the locus of
(a) All the combinations of good X and Y giving different level of satisfaction
(b) All the combinations of capital and labor giving same level of output
(c) All the combinations of good X and Y giving same level of satisfaction
(d) All the combinations of capital and labor giving different level of output
Q.12. Short run in production function refers to
(a) When all factors of production become variable
(b) One factor of production varies keeping all other constant
(c) When all factors of production become variable
(d) None of the above
Q.13. Opportunity cost refers to
(a) The expected return from the use of the resource
(b) The expected return from the second best alternative use of the resource
(c) Accounting cost less of unilateral transfers
(d) None of the above
Q.14 Long run average cost curve is also known as