Managerial Economics

Santanu Gupta
 1. The table below gives a profile of the marks obtained by a
student in the three subjects English, Economics and
Mathematics for the number of hours studied. If a student
decides to study for 10 hours, how his grade will depend on
the total marks in three subjects, subject to passing in each
subject. The pass marks in each subject is 50? You have to
justify your answer that is state how you arrive at the
solution to get full marks.

Subjects/Hours of
study 0 1 2 3 4 5 6 7 8

English 0 45 60 72 83 87 90 92 93

Economics 0 40 60 70 76 79 82 84 85

Mathematics 0 50 75 85 90 94 97 99 100
2. The space given to Mr. Agarwal, the owner of Shaligram Store was limited; he had just enough space to keep a maximum of 12 cartons of goods. One carton of sugar
has had to be bought for Rs. 1000, a carton of Lays Chips Rs. 3000, a carton of Parle biscuits for Rs. 1000 and finally a carton of Old Spice Aftershave for Rs. 7000.

The commission (the retailer’s net profit) on a carton of sugar is Rs. 100, for a carton of Lays chips Rs. 750, a carton of Parle biscuits is Rs. 400 and a carton of Old Spice
Aftershave is Rs. 2100.

It is possible for Mr Agarwal to sell 10 cartons of sugar, 8 cartons of Lays chips, 3 cartons of Parle biscuits and 2 cartons of Old Spice Aftershave in a month.

Mr Agarwal has a cash constraint of Rs. 10000, but he can borrow from the external markets at an interest rate of 15% and can earn an interest rate of 12%, were he to
save his money in a bank.

Which items should Mr. Agarwal stock in his shop and how should he invest his money to have the maximum earnings?
3. An economy uses ½ a unit of labor to produce x and ¼ unit
of labor to produce y and the economy has 100 units of labor.
If the international price of y be 1/3 units of x, the economy
should completely specialize in the production of y. Justify
whether the statement is true or false.
• 4. There are 100 workers in country A and 100 workers in country
B. Workers in both countries work for 50 hours. Workers in
country A work for 20 hours to produce a unit of food and 5 hours
to produce a unit of clothing. Workers in country B work for 5
hours to produce a unit of food and 20 hours to produce a unit of
clothing. Workers in both countries like to consume equal units of
food and clothing; that is if a worker is consuming 10 units of food
and 15 units of clothing, the extra 5 units of clothing give no
satisfaction. Find out optimum consumption levels of a worker in
both countries in a situation of no trade. If both countries decide
to specialize and trade, and agree to an exchange rate that leaves
a worker in both countries consume the same amount food and
clothing after trade, find out the optimum consumption levels of
workers in both countries in a situation after trade.