09 oB,01,02

162

Jayewardenepura
University of Sri
Graduate Studies
Faculty of

2021
MBA/M.Se. in
Management Program
February 2021
I/Term 1
-

Examination/Year

Term End
MANAGEMENT

ECONOMICS FOR
MMS 5102
Time: Three Hourss

Answer any five (05) questions.

Qustion 01
home. Assume
to work from
19 Pandemic), people start
this coronavirus (COVID
-

a new mobile
During work from home.
You expect to buy
also decided to demand
that your management that determinc
List down factors
resume yourduties via virtual platform.
phone to

for the mobile phonc.

(04 marks)

in a
supply functions for
coconuts
demand and
are given the following coconut)
ii. Suppose we millions and prices are in rupees per
hypothetical economy. (Quantities are in

150- 2Q -Demand equation

Pd

Ps 50+ 2Q -Supply equation

coconut.
Calculate the equilibrium quantity
and price er
a)
(02 marks)

has decided to in1pose a

maximum price (Price ceiling) on
) Suppose that the govenment c[ffectiveness of this policy using suitable
coconut. Discuss the
coconuts as Rs. 70 per

llustrations and calculations.

(06 inarks)
 EAplan the etfect of the following events on the price elasticity of demand tor I ord
Utility Vchicles (SUVS) the USA Market in
Sport-

aOther ear manufacturers. such as General Motors, deeide to make and sell Stvs
" b)SUVs produced in other countries are banned in the USA Market
ela Anew
A new advertising campaign launched by the suppliers
much sater than emphasized that SUVs arc
ordinary pussenger cars.
a s tdCd
Cd NCw models such as
four-wheel-drive cargo vans are introduced by other
countries to the USA Market

(08 marks)
(Total 20 marks)
iestion 02
&
Ditlerentiate between the Cardinal tlheory and the Ordinal theory of consunmer behavior.
Indifterence curves are
(0-4 marks)
always convex to the origin". Do you agree? Explain
with appropriate illustrations. your answer

lox 2 IOx t05 marks)

ICU20x2
Veronica's utility function is U
=10X Z. Where U is the total utility. X and Z are the
ofunits consume from each commodity. The price number
and income is Y SI50. Calculate =
of X is Px S10, the price Z is Pz $5,
of
Veronica's optimal consumption bundle of X and Z

Suppose that the (05 marks)

government has decided to impose 33.3% tariff on a

encourage domestic entrepreneurs. Sujani imports of elotbing's to

spends Rs. 8,00t oo dresses each month. Before the
tariff. the
pree of dress
a
produced domestically is
Rs.400 dnd the price of a foreign made
dress is R4300. Use an indifference curve-budget line
analysis illustrate how the new tarit to
affects the ouantity of dresses Sujani buys compared to what she would have bought in absence
of the tar
fT
Will she bay a
relatively higher nuunber of domestically peduced dresses after the tar1tiT' Why
orwhy

(06 marks)

TuL 0 marks)
 iestion 03

the short run? Describe

THow doCs rational producer select the
a optinmum stage of production in
our ansuer w ith suitablc illustrations.
(0-1 marks)

ii. Suppose that a firnm's production function is described by;

60L - L?
hours. Suppose that output
Where Q measures units of output and L is the number of labor
is sold for $2 per unit and the cost of labor is MC S16 per hour.

much output should be produced by the

How many hours of labor should be hired and how
firm?
(05 mmarks)

of isoquant with appropriate illustrations.

111 Explain the properties
(05 marks)
with a n
the factors that give rise to economies and dis-cconomies of seale. Explain
Identify
in the long
example why a company should produce at the minimum eflicient seale (MES)
Tun
(06 marks)

(Total 20 marks)

Question 04

Explain the short run cquilibrium and supply curve of a perfect competitive firin using

diagrams.
(04 macks)

and the slope ot tns

faces a downward-loping market demand
lst curve
Aiway 1tc niumoy

curves ar: lover :han market demand curve" Da you agree with
zverage ard marpiuiad revenue

thrs aternent tslain y our answer with ila stsation

(04a

tunts
4 55tic u perie. J.43Pctitjvr fT7 a i the t'Jow ing seveue uy

22
 maximizes profits and calculate the total
a) Calculate the level of output and price that
profit, if any.
Should this firm continue producing if MR falls to Rs. 35? Explain your answer.

b)
(04 marks)

impact the of
iv. Companies have been spending millions of moncy on advertising". Explain
COVID 19 Pandemic on advertising spending of the firm's revenue and profits.

(04 marks)

N
"In a dynamic business environment, analysis of strategic behavior of firms brcome key

aspects of decision making." Do you agree with this statement? Explain yout answer usiug an

appropriate example.

(04 marks)

(Total 20 marks)

estion 05

xplain the behavior of macroeconomic variables during COVID-19 Pandemic? Discuss the
importande of understanding the new movements in the macroeconomic variables for your
business decision making.

(07 marks)

Briefly explain the reasons for high unemployment rate in Sri Lanka during the period of
ongoing COVID - 19 Pandemic.

(05 marks)
You are given the following information on a hypothetical economy.
C =
2600 + 0.75Yd (Consumption Function)
1500 (Investument)
Tx 300 006Y (Ta! Tax Funetion)

G 3509 (iveament Expenditu.e)

You required
are to
calculat
) 'rival .Igs b) ublic Savings a l
 Domestic Savings.

(08 marks)

(Total 20 marks)

Question 06
You are given the following macrocconomic data on a hypothetical economy. Based on the
given information answer the questions below. (All values are given in rupees million)

C 3400+ 0. 6Yd (Consumption Function)

= 4300 (Investment Expenditure)

Tx 400+0.06Y (Total Tax Function)

G 1954 (Government Expenditurc)

Tr 660 (Transfer Payments)

a) What is the equilibrium level of income in this economy?

(05 marks)

b) Calculate budget surplus/deficit at this equilibrium income level. Assume that this
economy is facing a debt crisis as well. Discuss the effects of budget surplus/deficit on this
economy.
(05 marks)
was a political crisis in this county and after that a new government
was
c) Assume that there
elected in January 2020. The new govemment decided to reduce tax burden on people in

the country. Discuss the consequence of this decision on the economy.

(05 marks}

d) Due to the prevailing condition of the country. governnent has decided to pay cash transfer
to the poor households in the country. Assume that the total amount spend on this stimulus

is 8175 million. Calculate equilibrium level of income as a result of this

package new

decisicn
(05 marks)

(otal 20 Viark)

ND