ADL 04 Managerial Economics V2

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ADL 04 Managerial Economics V2
Assignment – A
Question l. How does economic theory contribute to managerial decisions?
Question 2. Expain the law of demand. Briefly discuss the exception to the law
of demand.
Question 3. Expain the various components of demand function.
Question 4. (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 4. (ii) Distinguish between linear and non linear demands functions.
Question 5. Expain the trend projection method of demand forecasting?

 

Assignment – B
Question 1. Expain the concepts of return to scale and returns to a factor.
Question 2. Expain the following:-
Opportunity Costs
Fixed Costs
Social and Private Costs
Sunk Costs
Question 3. Expain the reationship among the average total cost marginal cost
and average variable costs.

 

Case Study
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?
Assignment – C
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’ anc
4. In the ong run there are no
(a). fixes costs
(b). variable costs
(c). normal profits
(d). economies fiscale
5. Marginal cost can be defined as the
(a). cost of the most efficiently produced item
(b). change in fixed cost resulting from one more unit of production
(c). difference between fixed and variable cost at any level of output
(d). amount one more unit of output adds to total cost.
6 Fixed costs are those costs
(a). that are subject to diminishing marginal productivity
(b). that are embodied in the caculation of marginal cost
(c). that are independent of the rate or output
(d). that are implicit to a competitive firm.
7 A purely competitive firm is in short run equilibrium and its MC exceeds its
A3. It can be included that
(a). firms will leave the industry in the ong run
(b). the firm is realizing an economic profit
(c). the firm is realizing a oss
(d). this is an increasing cost industry
8. The competitive seers short-run supply curve is
(a). synonymous with its marginal cost curve
(b). its marginal revenue curve
(c). that part of its marginal cost curve lying above average variable cost
(d). its average fixed cost curve.
9 The monopolistic firms demand curve
(a). is always inelastic
(b). coincides with its marginal revenue curve
(c). is perfectly elastic
(d). is less eastic than a purely competitive firms demand curve.
10. If an imperfectly competitive firm is seling its 100th unit of output for
$35, its marginal revenue
(a). will be greater than $35
(b). will be ess than $35
(c). will aso be $35
(d). may be either greater or less than $35
11 Which of the following statements is incorrect?
(a). A pure monopolistic demand curve is the industry demand curve
(b). A monopolistic firm produces a product for which there are no close
substitutes.
(c). The monopolists marginal revenue is less than price for any given output
greater than one
(d). A monopolists pre-eminent market position ensures economic profits
12. A pure monopolists demand curve
(a). lies beow its marginal revenue curve
(b). lies above its marginal revenue curve
(c). coincides with its marginal revenue curve
(d). is linked at the profit maximizing price
(e). is perfectly ineastic
13. For an imperfectly competitive firm,
(a). the marginal revenue curve will lie beow the demand curve because any
reduction in price applies only to the extra units sold
(b). the marginal revenue curve will lie beow the demand curve because any
reduction in price applies to al units sold
(c). the marginal revenue curve will lie above the demand curve because any
reduction in price applies to al units sold
(d). Total revenue is a straight, upsloping line because a firms sales are
independent of product price.
14. For in imperfectly competitive firm,
(a). marginal revenue will become zero at that output where the revenue is at
a maximum
(b). the demand curve will intersect the horizontal axis at the point where
total revenue is at a maximum
(c). the demand and marginal revenue curves will coincide
(d). the marginal revenue curve will lie above the demand curve.
15. When setting its price, an oligopoly
(a). does not have to worry about how its rivas will react to its price
(b). knows how its rivas will react to its price
(c). is uncertain about its rivas reaction
(d). none of the above
(Q). 16 A firm facing a linked demand curve expects that its competitors
(a). will match its price increase but not its price decrease
(b). will match its price decrease, but not its price increase
(c). will match any price change it may make
(d). will not match any price change
17. Monopolistic competition differs from perfect competition because
(a). there are many seers
(b). there is free-entry of new firms
(c). each firm ses a differentiated product
(d). al of the above
18. The feature of monopolistic competition that drives a firms profit to zero
in the long run is
(a). product differentiation
(b). price leadership
(c). market power
(d). free entry
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.
26. A non discriminating monopolist
(a). may produce where demand is either elastic or inelastic , depending upon
the level of production costs
(b). will never produce in the output range where demand is eastic
(c). will never produce in the output range where demand is ineastic
(d). will never produce in the output range where marginal revenue is
positive.
27. Monopolistic competition resembles pure competition because
(a). barriers to entry are either weak or nonexistent
(b). both industries entail the production of differentiated products
(c). in both instances firms will operate at the minimum point on their long
run average cost curve
(d). both industries emphasize non price competition.
28. The monopolisticaly competitive seers demand curve will tend to become more
elastic, the
(a). smaer the number of competitors
(b). larger the number of competitors
(c). greater the degree of product differentiation
(d). more significant the barriers to entering the industry
29. The monopolisticaly competitive seer maximizes profits by producing at the
point where
(a). marginal revenue equas average cost
(b). price equas marginal revenue
(c). marginal revenue equas marginal cost
(d). average costs are at a minimum
30. In the short run, a monopolisticaly competitive firms economic profits
(a). will always be zero
(b). are always positive
(c). may be positive, zero, or negative
(d). will be maximized where price equas average cost.
31. The arger the number of firms and the smaer the degree of product
differentiation, the
(a). More elastic is the monopolisticaly competitive firm’s demand curve.
(b). Less eastic is the monopolisticaly competitive firm’s demand curve.
(c). Larger will be the monopolisticaly competitive firm’s fixed costs.
(d). Greater the divergence between the demand and the marginal revenue
curves of the monopolisticaly competitive firm.
32. If the number of firms in a monopolisticaly competitive industry increases
and the degree of product differentiation diminishes.
(a). the likelihood of collusive pricing would increase.
(b). the industry would more closely approximate pure competition.
(c). Individual firms would now be operating at outputs where their average
total costs would be higher
(d). The likelihood of realizing economic profits in the ong run would be
enhanced.
33. Oligopolistic industries are characterized by
(a). a few dominant firms and substantial entry barriers.
(b). a few dominant firms and substantial entry barriers.
(c). a arge number of firms and ow entry barriers.
(d). a few dominant firms and ow entry barriers.
34. One would expect that collusion among oligopolistic producers would be
easiest to achieve in which of the following cases?
(a). a very few forms producing a homogeneous product.
(b). a rather number of firms producing a homogeneous product.
(c). a very few firms producing a differentiated product.
(d). a rather large number of firms producing a differentiated product.
35. Under which of the following market structures will equilibrium price be
equal to marginal cost?
(a). pure competition
(b). pure monopoly
(c). monopolistic competition
(d). oligopoly
36. Which of the following is a unique feature of oligopoly?
(a). non price competition
(b). product differentiation
(c). advertising expenditures
(d). mutual interdependence
37. “Mutual interdependence” means that each firm
(a). produces a product similar but not identical to the products of its
rivas
(b). produces a product identical to the products produced by its rivas
(c). must consider the reactions of its rivas when it determines its price
policy
(d). faces a perfectly eastic demand for its product
38. A firms short run supply is constructed from its
(a). fixed cost
(b). short run marginal cost and average variable cost
(c). average fixed cost
(d). none of the above
39 In defining costs
(a). economists take implicit opportunity costs into account, but accountants
do not
(b). accountants take implicit opportunity costs into account, but economists
do not
(c). both take implicit opportunity costs into account
(d). neither take implicit opportunity costs into account.
40. A firms costs are reated in the following way
(a). AC cuts average variable cost (AVC) at the minimum point of AVC
(b). AC cuts marginal cost MC at the minimum point of MC
(c). MCcuts AC at the minimum point of AC
(d). None of the above
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