ADL 04 Managerial Economics V3

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ADL 04 Managerial Economics V3
Assignment – A
Question 1. 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 2. 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 3. Analyse the method by which a firm can allocate the given
advertising budget between different media of advertisement.
Question 4. 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 5. How do demand forecasting methods for new products vary from those
for established products?
Assignment – B
Question 1. What are the different methods of measuring national income? Which
methods have been followed in India?
Question 2. 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 3. Discuss the various phases of business cycle:
(i) Are cyclical fluctuations necessary for economic growth?
(ii) Suggest appropriate fiscal and monetary policies for depression.

 

Case Study
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.
Assignment – C
1. Econometrics is
(a). A modern name for economics
(b). A specialized branch of economics which applies the tools of statistics
to the economic problems
(c). A branch of economics which combines macroeconomic principles with
welfare economics
(d). A branch of economics which combines microeconomic principles with
international trade
(e). A specialized branch of economics which describes neo-classical
microeconomics
2. Which of the following comes under the broad definition for factors of
production?
(a). Technology
(b). Obsolete machinery
(c). Innovations
(d). Capital
(e). Patent rights
3. Which of the following statements is true?
(a). When the supply increases, both the price and the quantity will
increase.
(b). When the supply increases, the supply curve shifts towards the left
(c). A shift in the supply curve towards the right results in a fall in the
price
(d). A decrease in the quantity supplied results in shifting of the supply
curve towards the left.
(e). An increase in the quantity supplied leads to a fall in the price
resulting in the shifting of the supply curve towards the left.
4. Which of the following statement(s) is/are false?
(a). If the demand falls, the price will fall.
(b). As the price rises the quantity demanded will fall.
(c). If demand rises, the demand schedule shifts to the left.
(d). Both (a) and (b) above.
(e). Both (a) and (c) above.
5. Which of the following statements is false?
(a). An increase in tax will affect the customers more than the producers if
the supply schedule is inelastic.
(b). An increase in tax will affect the customers more than the producers if
the demand schedule is inelastic.
(c). An increase in tax will affect the customers less than the producers if
the supply schedule is inelastic.
(d). An increase in tax will affect the customers less than the producers if
the demand schedule is inelastic.
(e). Both (a) and (d) above.
6. Which of the following statements is true?
(a). Elasticity of demand is constant throughout the demand curve.
(b). Elasticity of demand increases as one goes down the demand curve.
(c). Elasticity of demand decreases as one goes down the demand curve.
(d). The slope of the demand curve equals its elasticity.
(e). The price and total revenue move in the same direction when demand is
elastic.
7. For complementary goods, the cross elasticity of demand will be
(a). Zero.
(b). Infinity.
(c). Positive, but less than infinity.
(d). Negative.
(e). None of the above.
8. When the income elasticity of demand for a good is negative, the good is
(a). Normal good.
(b). Luxury good.
(c). Inferior good.
(d). Giffen good.
(e). Necessity.
9. If both income and substitution-effects are strong, this region of the demand
curve must be
(a). Relatively price elastic.
(b). Relatively price inelastic.
(c). Unit-elastic.
(d). Perfectly inelastic.
(e). Perfectly elastic.
10. If a good has close substitutes,
(a). Its demand curve will be relatively elastic.
(b). Its demand curve will be relatively inelastic.
(c). Its demand curve could be unit-elastic.
(d). Either (a) or (c).
(e). Either (b) or (c).
11. The demand for most products varies directly with the change in consumer
income. Such products are known as
(a). Normal goods.
(b). Prestigious goods.
(c). Complementary goods.
(d). Inferior goods.
(e). Substitute goods.
12. Which of the following statements is true with regard to price elasticity of
demand?
(a). Elasticity remains constant throughout the demand curve.
(b). Elasticity increases with increase in quantity demanded.
(c). Elasticity increases as the price decreases.
(d). Elasticity is equal to the slope of the demand curve.
(e). Higher the elasticity, more responsive the demand is for a given change
in price.
13. Which of the following goods can be considered substitutes?
(a). Pen and Paper.
(b). Car and Petrol.
(c). Bread and Butter.
(d). Tea and Coffee.
(e). Keyboard and Monitor.
14. Which of the following statements concerning indifference curves is true?
(a). An indifference curve is the locus of points describing proportional
price levels of the two goods.
(b). Indifference curves pre-suppose the measurement of total utility and
marginal utility.
(c). An indifference curve is the locus of points representing various
combinations of two goods about which the consumer is indifferent.
(d). Indifference curve pre-suppose the validity of “the law of diminishing
returns”
(e). None of the above
15. If a change in all inputs leads to a proportional change in the output, it
is a case of
(a). Increasing returns to scale
(b). Constant returns to scale
(c). Diminishing returns to scale
(d). Variable returns to scale
(e). Inefficient returns to scale
16. Isoquants are
(a). Equal cost lines
(b). Equal product lines
(c). Equal revenue lines
(d). Equal total utility lines
(e). Equal marginal utility lines
17. When average product is highest
(a). Total product is maximum
(b). Marginal product is maximum
(c). Marginal product is zero
(d). Marginal product is negative
(e). Marginal product is equal to average product
18. If marginal product is negative, it means that the
(a). Total product is at maximum
(b). Average product is at maximum
(c). Average product is falling
(d). Total product is increasing
(e). Average product is negative
19. Which of the following curves is called envelope curve?
(a). Long run total cost curve
(b). Long run average total cost curve
(c). Long run marginal cost curve
(d). Long run average variable cost curve
(e). Long run average fixed cost curve
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). Increasing the price
(c). Increasing the production
(d). Increasing the expenditure of advertisement
(e). Increasing the sales force
27. Which of the following is not a source of market imperfection?
(a). Technology
(b). Size of the firm
(c). Product differentiation
(d). Availability of resources
(e). Forces of supply and demand
28. The maximum profit condition for a monopoly firm is
(a). Total cost should be minimum
(b). Total revenue should be maximum
(c). Marginal revenue is equal to marginal cost
(d). Quantity should be maximum
(e). Price should be maximum
29. “Four-firm concentration” refers to
(a). The number of firms in an industry
(b). The four largest firm in four different and important industries in an
economy
(c). The number of industries in an economy which have only four firms
(d). The percent of the total industry output that is accounted for by the
largest four firms
(e). The percent of the total industry output that is accounted for by the
largest four firms
30. Market inefficiencies can come from
(a). Externalities
(b). Monopolies
(c). Imperfect information
(d). Entry barriers
(e). All of the above
31. A monopolist who faces a negatively sloped demand curve operates in the
region where the elasticity of demand is
(a). Less than 1
(b). Equal to 1
(c). Greater than 1
(d). between 0 and 1
(e). 0
32. In which of the following market structures the entry is least difficult?
(a). Monopoly
(b). oligopoly
(c). duopoly
(d). regulated monopoly
(e). monopolistic competition
33. Which of the follow is false in a monopolistic competition?
(a). Many buyers and sellers
(b). Identical products
(c). Easy entry and exit
(d). Price of the competitor is the benchmark price
(e). Each firm could be market leader in its product segment
34. The term “differentiated product” denotes
(a). Different products in similar packets
(b). Different products
(c). Same product used in different applications
(d). Different products used by a differentiated set of people
(e). Products whose important characteristics vary
35. Which of the following is common feature in both a monopolistic competitive
market and oligopoly market?
(a). Product differentiation
(b). Interdependence among member firms
(c). Kinked demand curve
(d). Limited number of sellers
(e). Entries blocked
36. The term “collusion” refers to
(a). A situation in which government sets prices with the market leader in
oligopoly
(b). A situation in which government jointly sets prices with the small
players in an industry in the larger interest of the society
(c). A situation in which all firms in an industry decide the price and
output
(d). A situation in which two powerful groups in an industry hand with
government to rule the industry
(e). A situation in which central and state government jointly decide price
and output for an industry
37. Which of the following does not likely to lead to the failure collusive
oligopoly?
(a). Secret price cutting
(b). More number of firms
(c). Undifferentiated products
(d). Rapidly changing technology
(e). Competition from foreign firms
38. Price leadership refers to
(a). Pre-emptive pricing made possible by the learning curve
(b). A form of price collusion
(c). The maintains of a monopolistic price
(d). Cut throat competition
(e). None of the above
39. A cartel is
(a). A group firms which get together and make joint price and output
decisions to maximize joint profits
(b). Form of tacit collusion
(c). Type of oligopoly in which curve is kinked
(d). Duopoly
(e). None of the above
40. A zero-sum game is one in which
(a). The gain of one player equals the loss of another player
(b). The gain of one player will not equal the loss of another player
(c). The maximin equals the minimax
(d). The maximin does not equal the minimax
(e). The equilibrium and the dominant equilibrium are the same

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