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EPGP
End Term Question Paper
Total Marks: 70 | Total Time: 3 hours
Course Title Managerial Economics
Instructor Prof. Anirban Ghatak
Course code EPGP‐102
Total duration 3 hours
Batch & Section EPGP 13 - SECTION C

ANSWER QUESTIONS TO SUM UP TO 70 MARKS

(If you attempt extra, any attempts after 70 marks will be diligently ignored)

1. Why do long-run elasticities of demand differ from short-run elasticities? Consider

two goods: paper towels and televisions. Which is a durable good? Would you
expect the price elasticity of demand for paper towels to be larger in the short run or
in the long run? Why? What about the price elasticity of demand for televisions?
10
2. In a discussion of tuition rates, a university official argues that the demand for
admission is completely price inelastic. As evidence, she notes that while the
university has doubled its tuition (in real terms) over the past 15 years, neither the
number nor quality of students applying has decreased. Would you accept this
argument? Explain briefly. (Hint: The official makes an assertion about the demand
for admission, but does she actually observe a demand curve? What else could be
going on?) 5
3. Suppose the demand curve for a product is given by Q = 10 − 2P + PS, where P is the
price of the product and PS is the price of a substitute good. The price of the
substitute good is $2.00.
a. Suppose P = $1.00. What is the price elasticity of demand? What is the cross-
price elasticity of demand? 5
b. Suppose the price of the good, P, goes to $2.00. Now what is the price
elasticity of demand? What is the cross-price elasticity of demand? 5
4. Can a set of indifference curves be upward sloping? If so, what would this tell you
about the two goods? 5
5. Based on his preferences, Bill is willing to trade 4 movie tickets for 1 ticket to a
basketball game. If movie tickets cost $8 each and a ticket to the basketball game
costs $40, should Bill make the trade? Why or why not? 5
6. Suppose that an individual allocates his or her entire budget between two goods,
food and clothing. Can both goods be inferior? Explain. 5
7. Judy has decided to allocate exactly $500 to college textbooks every year, even
though she knows that the prices are likely to increase by 5 to 10 percent per year
and that she will be getting a substantial monetary gift from her grandparents next
year. What is Judy’s price elasticity of demand for textbooks? Income elasticity? 5
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8. You are an employer seeking to fill a vacant position on an assembly line. Are you
more concerned with the average product of labor or the marginal product of labor
for the last person hired? If you observe that your average product is just beginning
to decline, should you hire any more workers? What does this situation imply about
the marginal product of your last worker hired? 10
9. Isoquants can be convex, linear, or L-shaped. What does each of these shapes tell
you about the nature of the production function? What does each of these shapes
tell you about the MRTS? 10
10. Explain why the marginal rate of technical substitution is likely to diminish as more
and more labor is substituted for capital. 5
11. How should a monopsonist decide how much of a product to buy? Will it buy more
or less than a competitive buyer? Explain briefly. 5
12. A monopolist is producing at a point at which marginal cost exceeds marginal
revenue. How should it adjust its output to increase profit? If you can draw a graph,
that would be nice! 10