Date: 16/09/2011 Time: 1 hour 15minutes

Managerial Economics
Test (NCP-3) Section-D(Total marks:30) Part-A Tick the correct answer. Each question contains 1 mark (1*4=4) 1. In a monopolistically competitive branded gold jewelry market if the products are differentiated in terms of materials used , then it is a a) real product differentiation() b) imaginary/fancied product differentiation c) Advertising product differentiation d) None of the above 2. The portion of a perfectly competitive firm's marginal cost curve lying above its AVC curve a.) is upward sloping. b) Intersects the firm's ATC curve at minimum ATC. c). its intersection with the firm's MR curve determines the firm's profit maximizing output level. d) Is the firm's supply curve. e). all of the above are true. () 3. In a two firm duopoly model, if the firms produce homogeneous products and make their decisions simultaneously on the price of the product considering price charged by the competitor as given, the economic profit in equilibrium will be a)more than zero b)less than zero c)zero() d)none of the above 4. An oligopolistic firm which has perfect knowledge about the demand and supply condition of the market and also about the future can be called as the a)dominant firm b) leader firm c) follower firm d) none of the above()
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Part-B Answer the following questions. Marks assigned for each question are mentioned below the question 5. Define a cartel. What are the advantages of forming a cartel? Why cartel arrangements are not likely to be stable? (1+2+3=6) Cartel: organization of producers of a commodity, to coordinate the policies of the members to increase the profits, monopoly price Advantage: 1)can charge a higher price than competitive price,2)can help to avoid price war,cover uncertainty of a competitive situation4) can decrease the ease of entry 3)can reduce the costs/increase the efficiency Unstable because: (1)Tendency to cheat by charging a lesser price to get more market share/by selling more than the quota(2) difficult to make all the firms agree on price, output etc especially if they have different cost situations. (3) Attracted by cartel members profit more firms may enter the industry and undermine the cartel agreement.(4) if a large no of members are there in the cartel then there is a tendency of unstable cartel.
What is deadweight loss. The burden of a specific tax (in the competitive market situation) is shared by both consumers and producers. Under what conditions the consumers will bear higher burden of tax than the producers?-Explain

Refer to page no 265 and page no282 of the text book (1+3=4) 7. a) What are the factors which determine monopoly power? b) Suppose a firm earns positive profit in the monopolistically competitive market. Attracted by its positive economic profit, in the long run the other firms start entering in the market. What would be the changes in the demand curve for the monopolistically competitive firm? c) What do you mean by price caps? (2+3+1=6) a)Number of firms, elasticity of market demand and interaction among the firms(explanation needed) b)1)demand curve will shift downward and become more elastic(if the student has explained one out of these with proper graphical explanation he receive 2 out of 3) c) refer to page no 316 of the text book (3rd paragraph), if the student has mentioned that it is a limit to price I have given 0.5 marks.
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8. When a firm has monopoly power, a price regulation by the government leads to an increase in the social cost- Is this statement true or false? Justify your answer. (4) False. Refer to page no 314 and 315 in the text book. If it is just mentioned that such price regulation reduces the social cost, marks has been given depending on the explanation of the statement. Part-C 9. How economies of scope can be measured? (2)
Refer to page no 200. If the definition is mentioned only I have give 1 out of two. If there are no explanations of the notations I have given 1.75 out of 2.

10. a) What would be the shape of the long run total cost curve if there are constant returns to scale? b) What would be the shape of the marginal cost in the above mentioned case? (1+1=2)

a) positively sloped straight line from origin(refer to figure 6.6 b) MC curve will be horizontal straight line at the value of the constant slope of the LTC curve 11. What are the reasons behind increasing and decreasing returns to scale in a production process? (2)

Refer to page no 166- 1st and 4th paragraph.(specialization, use more sophisticated equipments, difficulties in running large scale organization, lack of coordination etc.)