CHRIST (Deemed to be University), Bengaluru – 560 029

MID TRIMESTER EXAMINATION – JULY 2019

(I Trimester)

PROGRAMME NAME: MBA MAX. MARKS: 50

COURSE NAME: Managerial Economics TIME: 2 hours
COURSE CODE: MBA 132

INSTRUCTIONS
 All rough work should be done in the answer script. Do not write or scribble in the
question paper except your register number.
 Verify the Course code / Course title & number of pages of questions in the question
paper.
 Make sure your mobile phone is switched off and placed at the designated place in the
hall
 Malpractices will be viewed very seriously.
 Answers should be written on both sides of the paper in the answer booklet. No sheets
should be detached from the answer booklet.
 Answers without the question numbers clearly indicated will not be valued. No page
should be left blank in the middle of the answer booklet.
_______________________________________________________________________________

SECTION A 4 x 10 = 40
Answer any FOUR of the following questions
1. How does the study of managerial economics help a business manager in decision
making? Illustrate your answer from production, demand, supply and pricing issues.

2. The accompanying table lists the cross-price elasticities of demand for several goods,
where the percent quantity change is measured for the first good of the pair, and the
percent price change is measured for the second good.

Good Cross Elasticities of demand

Air-conditioning units and
Kilowatts of electricity - 0.34

Coke and Pepsi +0.63

High-fuel-consuming sport-utility vehicles

(SUVs) and gasoline - 0.28

McDonald’s burgers and Burger King burgers +0.82

Butter and margarine +1.54

a) Explain the sign of each of the cross elasticities. What does it imply about the
relationship between the two goods in question?
 b) Compare the absolute values of the cross elasticities and explain their magnitudes.
For example, why is the cross elasticity of McDonald’s burgers and Burger King
burgers less than the cross elasticity of butter and margarine?
c) Use the information in the table to calculate how a 5% increase in the price of
Pepsi affects the quantity of Coke demanded.
d) Use the information in the table to calculate how a 10% decrease in the price of
gasoline affects the quantity of SUVs demanded.

3. The accompanying table gives part of the supply schedule for personal computers in
the United States.
Price of computer Quantity of computers supplied
$1,100 12,000
$900 8,000
a. Calculate the price elasticity of supply when the price increases from $900 to
$1,100 using the midpoint method.
b. Suppose firms produce 1,000 more computers at any given price due to improved
technology. As price increases from $900 to $1,100, is the price elasticity of
supply now greater than, less than, or the same as it was in part a?
c. Suppose a longer time period under consideration means that the quantity
supplied at any given price is 20% higher than the figures given in the table. As
price increases from $900 to $1,100, is the price elasticity of supply now greater
than, less than, or the same as it was in part a?

4. Suppose the demand curve for a product is given by Q=300-2P+4I, where I is average
income measured in thousand of US dollors. The supply curve is Q=3P-50.
a. If I=25, find the equilibrium price and quantity for the product.
b. If I =50, find the equilibrium price and quantity for the product.
c. Draw the graph to illustrate your answer.

5. Cups of coffee and donuts are complements. Both have inelastic demand. A hurricane
destroys half the coffee bean crop. Use appropriately labelled diagrams to answer the
following questions.

a. What happens to the price of coffee beans?

b. What happens to the price of a cup of coffee? What happens to total
expenditure on cups of coffee? (Diagram with explanation)
c. What happens to the price of donuts? What happens to the total expenditure
on donuts? (Diagram with explanation)
 6. Suppose that business travellers and vacationers have the following demand for
airline tickets from Bangalore to Mumbai:

Price in ($) Quantity demanded Quantity demanded (vacationers)

(business travellers)
150 2100 1000
200 2000 800
250 1900 600
300 1800 400

a. As the price of tickets rises from $200 to $250, what is the price elasticity of
demand for (i) business travellers and (ii) vacationers?

b. Why might vacationers have a different elasticity from business travellers?

SECTION B

Compulsory Question 1x10=10 Marks

1. Much of the demand for U.S. agricultural output has come from other countries. In
2016, the total demand for Wheat was Qd=3244-283P of this, domestic demand was
Qd=1700-107P. Domestic supply was Qs=1944+207P. Suppose the export demand
for what falls by 40 percent.
a. U.S. farmers are concerned about this drop in export demand. What happens
to the equilibrium price of wheat in the U.S. Do the farmers in U.S. have
reason to worry?
b. Now suppose the U.S. government wants to buy enough wheat each year to
raise the price to 3.50 $ per bushel. With this dop in export demand, how
much wheat would the government have to buy?. How much would this cost
the government?