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Executive Post Graduate Diploma in Management

Subject: Business Economics

Sample Question paper (Reference only)

Level 1: Objective Type (2 marks each)

1.A firm will shut down its operations in the short run if

(a) It incur losses

(b) Fixed costs exceed its revenue

(c) Variable costs exceed its revenue

(d) Total revenue falls short of total costs

(e) Total fixed costs exceeds its total variable costs.

2.Which of the following is true of a perfectly competitive firm in equilibrium?

(a) P = MR = MC

(b) P = MR, but MR > MC

(c) P = MC, but MR < MC

(d) MR = MC and P < MR

(e) MR = MC and P > MR.

3. One of the reasons for the existence of natural monopoly is

(a) Economies of scale (b) Diminishing marginal rate of productivity

(c) Downward sloping demand curve (d) Formation of cartels

(e) Lower fixed cost requirement.

4. A kinked demand curve occurs in an oligopoly when a firm

(a) Increases its price and others follow it (b) Increases its price and others do not follow it

(c) Decreases its price and others follow it (d) Decreases its price and others do not follow it

(e) Both (b) and (c) of the above.

5. 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.

6. The difference between the price an individual is willing to pay and the price he or she actually pays is

(a) Producer cost (b) Monopolist profit (c) Economic profit

(d) Producer surplus (e) Consumer surplus.

7. Maximum point on the average product curve is reached when

(a) Marginal product is zero

(b) Marginal product is maximum

(c) Marginal product is minimum

(d) Marginal product is negative

(e) Marginal product equals average product.

8. The point beyond which no rational firm would employ labor is

(a) When the average product of labor is equal to marginal product of labor

(b) When the marginal product of labor is maximum

(c) When the marginal product of labor is zero

(d) When the total product of labor is zero

(e) When the average product of labor is zero.

9. Which of the following is true in the third stage of the three stages of production process?

(a) The total product curve has an increasing slope

(b) The marginal product curve has a positive slope

(c) The marginal product curve lies below the average product curve

(d) Total product increases

(e) Marginal product is positive.

10. Which of the following is not an example of a firm’s explicit cost?

(a) Salaries paid to workers


(b) An amount of Rs.500 paid to an employee towards the reimbursement of medical expenses

incurred by him

(c) Advertisement expenditure incurred by the firm towards promotion of its branded good, ‘Atoka’

(d) The firm’s owner has given up a job, where he was earning Rs.10,000 per month, to run the firm

(e) Payment of telephone bills by the firm.

11. The intersection of the marginal cost curve and the average cost curve characterizes the point of

(a) Maximum profit (b) Minimum average cost

(c) Minimum marginal cost (d) Minimum opportunity cost (e) Minimum profit

12. Market equilibrium occurs, when

(a) Demand is greater than supply

(b) Quantity demanded equals quantity supplied

(c) The price, sellers ask for goods is less than the price consumers pay for those goods

(d) A shortage exists

(e) Demand is less than supply.

13 The demand curve is usually

(a) Downward sloping from left to right (b) Upward sloping from right to left

(c) Concave to the origin (d) Horizontal

(e) Vertical.

14. A consumer cannot go beyond the price line, because

(a) He has no sufficient income

(b) He has no taste for other combination of commodities

(c) He is restricted to certain custom of the society

(d) He has no information about the availability of other combinations

(e) The price of the commodity decreases.

15. Isoquants are convex to the origin. This is possible because


(a) Money outlay of the entrepreneur is constant

(b) Marginal rate of technical substitution between labor (L) and capital (K) is decreasing

(c) It is not possible to have infinite number of combinations of two outputs

(d) Both (a) and (b) above

(e) (a), (b) and (c) above

16. When a proportional change in input combination caused the same proportionate change in output,

the returns to scale is said to exhibit

(a) Increasing returns (b) Decreasing returns

(c) Constant returns (d) Negative returns

(e) Law of variable proportion.

17. Which of the following is true with respect to marginal cost?

(a) Total variable cost of an output

(b) Total fixed cost per unit of output

(c) Change in the total cost on account of an additional unit of output

(d) Cost that varies with the output level

(e) Cost of all inputs.

18. Which of the following reasons does not lead to a monopoly?

(a) Ownership of strategic raw material (b) Existence of numerous buyers

(c) Possession of patent rights for a product (d) Technological advantages

(e) Government licensing.

19. Which of the following situation does not lead to Price discrimination?

(a) Nature of the good (b) Preference of the buyer

(c) Distance (d) Differences in elasticity of demand

(e) Difference in elasticity of supply.

20. A monopoly aiming to maximize profit in the short run will


(a) Increase output and raise price

(b) Increase output and reduce price

(c) Reduce output and increase advertisement expenditure

(d) Produce an output where marginal cost is equal to marginal revenue

(e) Produce an output where average revenue is greater than marginal cost.

21. In monopolistic competition, marginal revenue is

(a) Less than price (b) Equal to price

(c) Greater than price (d) Always greater than zero

(e) Always less than zero.

22. Which of the following is not a predominant feature of the oligopolistic market?

(a) Group behaviour (b) Few firms supply entire market

(c) Interdependence of firms (d) Free entry and exit of firms

(e) Some firms have a large share and can influence the price.

23. The cross price elasticity of demand for the products Reko and Veko is 8. It implies that Reko and

Veko are

(a) Substitutes (b) Complements (c) Independent

(d) Inferior goods (e) Luxury goods.

24. Which of the following will most likely increase the demand for a particular good?

(a) A fall in the price of substitute goods

(b) An increase in time required to purchase complementary goods

(c) A decrease in the number of consumers purchasing substitute products

(d) A decrease in the price of complementary goods

(e) A decrease in income.

25.The demand curve facing a monopoly firm is a/an

(a) Horizontal straight line (b) Rectangular hyperbola


(c) Downward sloping (d) Upward sloping (e) Indeterminate.

26. When total utility is maximum, marginal utility is

(a) Greater than one (b) Zero (c) Less than one

(d) One (e) Infinity.

27. A profit maximizing firm seeks to maximize the difference between

(a) Marginal revenue and marginal cost (b) Marginal revenue and average cost

(c) Total revenue and marginal revenue (d) Total revenue and average cost

(e) Average revenue and average cost.

28 Which of the following statements is true?

(a) In a perfectly competitive market, an individual seller can influence the price

(b) In a monopolistically competitive market, no individual seller can influence the price

(c) In a perfectly competitive market, an individual seller is the price taker

(d) In a perfectly competitive market, advertisement plays a significant role

(e) In a perfectly competitive market, price exceeds marginal revenue

30. Which of the following is not a feature of a monopolistically competitive market?

(a) Relative freedom of entry and exit of firms

(b) Relatively large number of firms

(c) Homogeneous product

(d) Non-price competition

(e) Product of a firm is not a perfect substitute to that of another firm.

31. Which of the following curves is called planning curve?

(a) Long run average total cost curve

(b) Long run marginal cost curve

(c) Long run total cost curve

(d) Long run average fixed cost curve


(e) Long run average variable cost curve.

32. Which of the following is a benefit of first degree price discrimination by a monopolist?

(a) A larger output than a single-price monopolist

(b) A lower marginal cost than that incurred by a single-price monopolist

(c) Smaller profits than those earned by the single-price monopolist

(d) Zero economic profits in the long run

(e) A larger consumer surplus than under single-price monopoly.

33. Deadweight loss refers to

(a) The transfer of resources from buyers to sellers

(b) The decrease in total surplus that results from a tax

(c) The increase in producer surplus that results from a tax

(d) The decrease in government revenue that occurs when a tax rate is increased beyond its optimum

(e) The decrease in consumer surplus that results from a tax.

34. Hoping to increase wheat prices and the total revenues of wheat farmers, the government

encourages them to restrict their production, thereby reducing the supply of wheat. If the farmers

cooperate, then

(a) Wheat prices will rise, if demand is elastic

(b) Wheat prices will rise, if demand is inelastic

(c) Wheat prices will rise, regardless of demand elasticity, but the revenues of wheat farmers will rise

only if demand is elastic

(d) Wheat prices will rise, regardless of demand elasticity, but the revenues of wheat farmers will rise

only if demand is inelastic

(e) There is no change in the price of wheat.

35. Which of the following situations would necessarily lead to an increase in the price of apples?

(a) The wage paid to apple farm workers increases at the same time that medical researchers find that
eating apples reduces the chances of a person developing cancer

(b) While the wages of apple farm workers decrease drastically, the apple industry launches a highly

successful advertising campaign for apples

(c) A break through in technology enables apple farmers to use the same amount of resources as

before to produce more apple per acre

(d) The prices of apples and oranges decrease

(e) Weather during the growing seasons is ideal for apple production.

36. As its output increases, a firm’s short-run marginal cost will eventually increase because of

(a) Diseconomies of scale (b) A lower product price

(c) Inefficient production (d) The firm’s need to break even

(e) Diminishing returns.

37. In which of the following conditions in equilibrium, a market will not be competitive?

(a) Price exceeds marginal cost

(b) Price exceeds average variable cost

(c) Price exceeds average fixed cost

(d) Price equals opportunity cost

(e) Accounting profits are positive.

38. Which of the following is most likely to be true in the long run, if a perfectly competitive industry is

in

equilibrium?

(a) Individual firms are not operating at the minimum points on their average total cost curves

(b) Some firms can be expected to leave the industry if they earn profit

(c) Firms are earning a return on investment that is equal to their opportunity costs

(d) Some factors are not receiving a return equal to their opportunity costs

(e) Consumer can anticipate price increase.


39. Which of the following circumstances refers to a mixed economy?

(a) Free market economy

(b) Government plays the pivotal role in the functioning of the economy

(c) Prices are determined by the market forces only

(d) Government exercises its power only in the important sectors while in the other sectors a free

market economy exists

(e) Prices are decided by the farmers.

40. Binica, a brand of toothpaste, which was declining in sales, decided to undertake advertising

expenses.

The advertising expenses are indicated by the shift in

(a) MC curve to right (b) MC curve to the left

(c) AC curve to left (d) MR curve to the right

(e) MR curve to the left.

Level 2 : Descriptive Type(10 Marks Each)

1. Explain the role and responsibilities of managerial economist

2. Explain the importance of studying managerial economics to a Business Manager

3. How utility ananlysis heps to understad the consumer behaviour and consumers equilibrium

4. Explain the law of demand. What are the xceptions to it

5. What is price elastcity of demand? What are the factors influence price elasticity of demand

6. What is cross elastcity of demand? Explain with example for substitues and comlimentary

goods

7. Explain the managerial applications of price elasticity of demand

8. Explain the law of supply with examlpe. What are the determinats of supply

9. Bring out the significance of demand forecasting to a business manager

10. What is demand forecasting? Explain the different methods of Demand forecasting

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