AR INSTITUTE OF MANAGEMENT & TECHNOLOGY, MEERUT

PGDM I SEMESTER
PG 106 MANAGERIAL ECONOMICS
MM: 70

TIME: 3 Hrs.

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SECTION - A
Note: Attempt all the questions:
Q1:

Managerial economics is best defined as

a. the study of economics by managers.
b. the study of the aggregate economic activity.
c. the study of how managers make decisions about the use of scarce resources.
d. all of the above are good definitions.

Q2:

Select the group that best represents the basic factors of production.
a. land, labor, capital, entrepreneurship
b. land, labor, money, management skills
c. land, natural resources, labor, capital
d. land, labor, capital, technology

Q3:

Which of the following is not a non-price determinant of demand?

a. tastes and preferences
b. income
c. technology
d. future expectations

Q4:

What are Giffen Goods? Which of the following statements is not true?
a. an increase in demand causes equilibrium price and quantity to rise.
b. a decrease in demand causes equilibrium price and quantity to fall.
c. an increase in supply causes equilibrium price to fall and quantity to rise.
d. a decrease in supply causes equilibrium price to rise and quantity to rise.

Q5:

Which of the following would cause a decrease in the demand for fish?
a. the price of red meat increases.
b. the price of fish increases.
c. the price of chicken decreases.
d. the number of fishing boats decreases.

Q6:

In the short run, a change in the equilibrium price will

a. always lead to inflation.
b. cause a shift in the demand curve.
c. cause a shift in the supply curve.
d. cause a change in the quantity demanded or supplied.

Q7:

Which of the following refers to a shift in the demand curve?

a. "This new advertising campaign should really increase our demand."
b. "Let's drop our price to increase our demand."
c. "We dare not raise our price because our demand will drop."
d. "If new sellers enter the market, the demand for the product is bound to increase."

(1x70=70)

Q8:

A decrease in the price of personal computers can result from

a. a decrease in the price of chips.
b. improvements in methods of assembling computers.
c. an increase in the gross national product.
d. both a. and b.

Q9:

Which of the following can result in an increase in the supply of residential housing in the short run?
a. a decrease in the price of lumber
b. a decrease in real household incomes
c. an increase in the wages of electricians
d. none of the above

Q10.

Which of the following is a key determinant of both supply and demand?

a. income
b. future expectations
c. tastes and preferences
d. sales tax

Q.11.

A market is in equilibrium when

a. supply is equal to demand.

b. the price is adjusting upward.
c. the quantity supplied is equal to the quantity demanded.
d. tastes and preference remain constant.

Q.12. Which of the following indicates that there is a shortage in the market?
a. demand is rising
b. demand is falling
c. price is rising
d. price is falling

Q.13. The sensitivity of the change in quantity demanded to a change in price is called
a. income elasticity.
b. cross-elasticity.
c. price elasticity of demand.
d. coefficient of elasticity.

Q.14. A product that is similar to another, and can be consumed in place of it, is called
a. a normal good.
b. an inferior good.
c. a complementary good.
d. a substitute good.

Q.15. Two goods are _____________ if the quantity consumed of one increases when the price of the other
decreases.
a. normal
b. superior
c. complementary
d. substitute

Q.16. The sensitivity of the change in quantity consumed of one product to a change in the price of a related
product is called

a. cross-elasticity.
b. substitute elasticity.
c. complementary elasticity.
d. price elasticity of demand.

Q.17. A product consumed in combination with another is called a(n)

a. inferior good.
b. complementary good.
c. normal good.
d. substitute good.
Q.18. The government unit that wants to achieve "revenue enhancement" will find it considerably more
favorable to enact an excise tax on products whose demand is
a. highly elastic.
b. relatively elastic.
c. highly inelastic.
d. unitary elastic.
Q.19.

Managerial economics deals with the problem of

a. An individual firm.
b. An industry.
c. An economy.
d. Global economy.

Q.20.

Demand for a product refers to

a. Various quantities that are demanded by consumers.
b. Various amounts desired by consumers.
c. Total quantity of a product demanded during a given period of time.
d. Total quantity of a product demanded at a particular price in the market during a given period of
time.

Q.21.

The relationship between price and demand is

a. Direct.
b. Inverse.
c. Proportionate.
d. positive.

Q.22.

In case of increase in demand, the demand curve

a. Shifts backwards.
b. Shifts forward.
c. Will have upward slope.
d. Will be horizontal.

Q.23.

The Law of Demand assuming other things to remain constant, establishes the relationship between
a. Income of the consumer and the quantity of a good demanded by him.
b. Price of a good and the quantity demanded.
c. Price of a good and the demand for its substitute.
d. Quantity demanded of a good and the relative prices of its complimentary goods.

Q.24.

A firm operating under conditions of perfect competitions can

a. Determine the price of its product.

b. Determine only the size of its output.

c. Promote the sales through effective advertisement.
d. Capture the market by cutting down the price.
Q.25.

Demand forecasting is made - for the

a. For the existing products only.
b. New products only.
c. For both the existing products & for the new products.
d. For the substitutes only.

Q.26.

An increase in supply, demand remaining constant will change the equilibrium

a. Causing a fall in price.
b. Causing a backward shift in supply curve.
c. Causing no change in price.
d. Causing a rise in price.

Q.27.

Which of the following is not an economic activity?

a. A chartered accountant doing his own activity.
b. A teacher teaching in a college.
c. A son looking after his ailing mother.
d. A manager managing his organization.

Q.28.

Production function explains

a. The relationship between Qty of inputs employed and the corresponding total production cost.
b. The relationship between the firms total revenue and total production cost.
c. The relationship between qty of inputs used and the corresponding output obtained.
d. The relationship between market price charged and quantity supplied.

Q.29.

_____ deals with the total money supply and its management in an economy.
a. Fiscal Policy
b. Direct Controls
c. Monetary Policy
d. Stabilization Policy

Q.30.

Select the wrong statement in case of imperfect market.

a. The MR curve is similar to that of the AR curve
b. MR is less than AR
c. AR and MR curves are different.
d. Generally AR curve lies below the MR curve.

Q.31.

Charging high prices for new products is known as _________.

a. Penetration price policy
b. Charm prices
c. Marginal Cost Pricing
d. Price skimming

Q.32.

The position of equilibrium is indicated at the point where Iso-Quant curve is ___________ to ISOCost line.
a. Convex
b. Parallel
c. Tangential
d. Concave

Q.33.

Cost function usually refers to the relationship between cost and ___________.
a. fixed cost
b. rate of output
c. variable cost
d. direct cost

Q.34.

When supply is relatively inelastic, elasticity of supply ES = ______.

a. greater than one
b. zero
c. less than one
d. one

Q.35.

The demand curve will have a downward slope indicating ________.

a. the expansion of demand with a fall in price
b. contraction of demand with a rise in price
c. the expansion of demand with a fall in price and contraction of demand with a rise in price
d. rise in price causes a rise in supply

Q.36.

________ helps in formulating appropriate sales promotional strategy

a. Substitution Elasticity of Demand
b. Advertising or Promotional Elasticity of Demand
c. Income elasticity of demand
d. Cross elasticity of demand

Q.37.

Production cost is concerned with _____ to produce a given quantity of output.

a. Demand Forecast
b. Estimation of Costs
c. Profit Management
d. Pricing Policies

Q.38.

Monopoly exploitation is reduced by regulation that:

a. enhances product-market competition.
b. increases the bargaining power of workers.
c. increases the bargaining power of employers.
d. restricts output.

Q.39.

Economic profit equals:

a. normal profits plus opportunity costs.
b. business profits minus implicit costs.
c. business profits plus implicit costs.
d. normal profits minus opportunity costs.

Q.40.

In one hour, George can fix 4 flat tires or type 200 words. His opportunity cost of fixing a flat
tire is
a. 200 words
b. 4 flat tires
c. 1 word
d. 50 words

41.

Which of the following is a characteristic of a perfectly competitive market?

(a) Firms are price setters
(b) There are few sellers in the market.
(c) Firms can exit and enter the market freely.
(d) All of the above are correct.

42.

If a perfectly competitive firm currently produces where price is greater than marginal cost it
(a) will increase its profits by producing more.
(b) will increase its profits by producing less.
(c) is making positive economic profits.
(d) is making negative economic profits.

43.

When a perfectly competitive firm makes a decision to shut down, it is most likely that
(a) price is below the minimum of average variable cost.
(b) fixed costs exceed variable costs.
(c) average fixed costs are rising.
(d) marginal cost is above average variable cost.

44.

In the long run, a profit-maximizing firm will choose to exit a market when
(a) fixed costs exceed sunk costs.
(b) average fixed cost is rising.
(c) revenue from production is less than total costs.
(d) marginal cost exceeds marginal revenue at the current level of production.

45.

When firms have an incentive to exit a competitive market, their exit will
(a) drive down market prices.
(b) drive down profits of existing firms in the market.
(c) decrease the quantity of goods supplied in the market.
(d) All of the above are correct.

46.

In a perfectly competitive market, the process of entry or exit ends when

(a) firms are operating with excess capacity.
(b) firms are making zero economic profit.
(c) firms experience decreasing marginal revenue.
(d) price is equal to marginal cost.

47.

Equilibrium quantity in markets characterized by oligopoly are

(a) lower than in monopoly markets and higher than in perfectly competitive markets.
(b) lower than in monopoly markets and lower than in perfectly competitive markets.
(c) higher than in monopoly markets and higher than in perfectly competitive markets.
(d) higher than in monopoly markets and lower than in perfectly competitive markets.

48.

In a perfectly competitive industry, a firm can:

(a) Make an economic profit in the short-run but not in the long-run
(b) Make an economic loss in the short-run but not in the long-run
(c) Make an accounting profit, but not an economic profit, in the long-run
(d) All of the above.

49.

A dominant strategy is one that

(a) beats all others, regardless of the opponents choice
(b) beats all others, given the opponents choice.
(c) is beaten by all others, regardless of the opponents choice
(d) is beaten by all others, given the opponents choice.

50.

What is the advantage to a particular firm of cheating on an otherwise effective cartel?

(a) The industry can then act like a monopoly.
(b) It decreases risk
(c) It enhances credibility
(d) It pays in the short-run and may pay in the long run.

51.

In a model of monopolistic competition in the long run equilibrium

(a) no firms remain in the market
(b) new firms will want to enter the market
(c) all firms must be operating at minimum average cost
(d) there are no economic profits being made

52.

Con Agra has introduced a lean mixture of barley and mutton which is indistinguishable from mutton but has
about the same amount of fat as chicken. As a result, the
(a) demand for chicken increases
(b) demand for barley decreases
(c) quantity demanded of chicken increases.
(d) demand for chicken decreases.

53.

The price of stereo systems has fallen while the quantity purchased has remained constant. This implies that the
demand for stereo systems has
(a) increased
(b) increased while the supply of stereo systems has increased.
(c) decreased while the supply of stereo systems has increased
(d) decreased while the supply of stereo systems has decreased

54.

The cross price elasticity of demand is defined as the

(a) Percentage change in the quantity demanded divided by the percentage change in the goods price.
(b) Percentage change in the quantity demanded divided by the percentage change in a different goods price.
(c) Percentage change in the goods price divided by the percentage change in a different goods price.
(d) Change in the quantity demanded of a good divided by the change in its price.

55.

A profit maximising firm sets its price

(a) to maximise sales
(b) so that the demand is elastic
(c) to equate average revenue to average cost.
(d) where marginal profit is maximized.

56.

When average total cost is at its minimum

(a) average variable cost is declining with increases in output
(b) Average total cost is equal to average variable cost
(c) Marginal cost is less than average total cost.
(d) Marginal cost is greater than average total cost.

57.

Oligopoly is a market structure that necessarily has

(a) cartels
(b) a large number of firms with homogeneous products.
(c) A small number of firms, but more than one
(d) A large number of firms with slightly different products

58.

Your firm is in a duopoly. When you drop your price, your rival is likely to follow. If you agree to wage rises for
your employees, this is likely to have
(a) a negative strategic effect
(b) a positive strategic effect
(c) no strategic effect
(d) no effect on profits at all

59.

If price of substitutes of (X) increases then demand curve of X will

(a) Shift upward
(b) shift downward
(c) shift rightward
(d) shift leftward

60.

In case of indivisible goods, which are not priced, the decisions regarding their demand preferences are taken
through price mechanism.
(a) True
(b) False

61.

A monopolists product is a unique product.

(a) Tue

(b) False

62.

The products sold by different sellers under pure competition are heterogeneous.
(a) Tue
(b) False

63.

There are no real exceptions to the law of demand

(a) Tue

(b) False

64.

The divisible goods, whose benefits can be priced, are called pure public goods.
(a) Tue
(b) False

65.

In the measurement of profit, the differences in the concept of profit arise due to differences in cost concepts.
(a) Tue
(b) False

66.

Price discrimination is possible in perfect competition

(a) Tue

(b) False

Supply is predominantly determined by

(a) Stock
(c) Competitor

(b) Price
(d) Government

67.

68.
69.
70.

Perfectly elastic demand curve is

(a) Horizontal
(b) Perpendicular
A fall in price tends the demand for goods to
(a) Expand

(c) Diagonal
(b) Contract

The profits which must be deducted from the gross profits to arrive at net profits are
(a) Monopoly Profits
(b) Super Profits

Ans.1.
Ans.6.
Ans.11.
Ans.16.
Ans.21.
Ans.26.
Ans.31.
Ans.36.
Ans.41.
Ans.46.
Ans.51.
Ans.56.
Ans.61.
Ans.66.

D
A
A
B
B
B
A
B

Ans.1.
Ans.6.
Ans.11.
Ans.16.
Ans.21.
Ans.26.
Ans.31.
Ans.36.
Ans.41.
Ans.46.
Ans.51.
Ans.56.
Ans.61.
Ans.66.

Ans.1.
Ans.6.
Ans.11.
Ans.16.
Ans.21.
Ans.26.
Ans.31.
Ans.36.
Ans.41.
Ans.46.
Ans.51.
Ans.56.
Ans.61.
Ans.66.

C
D
C
A
B
A

C
B
D
C
D
A
B

C
B

Ans.2. A
Ans.7.
Ans.12. C
Ans.17.
Ans.22. B
Ans.27.
Ans.32. C
Ans.37.
Ans.42. A
Ans.47.
Ans.52. D
Ans.57.
Ans.62. B
Ans.67. A

Answer Key I
Ans.3.
Ans.8. D
Ans.13.
Ans.18. C
Ans.23.
Ans.28. C
Ans.33.
Ans.38. B
Ans.43.
Ans.48. D
Ans.53.
Ans.58. B
Ans.63. B
Ans.68. A

Ans.4. D
Ans.9.
Ans.14. D
Ans.19.
Ans.24. B
Ans.29.
Ans.34. C
Ans.39.
Ans.44. C
Ans.49.
Ans.54. B
Ans.59.
Ans.64. B
Ans.69. A

Ans.5.
Ans.10. B
Ans.15.
Ans.20. D
Ans.25.
Ans.30. D
Ans.35.
Ans.40. D
Ans.45.
Ans.50. A
Ans.55.
Ans.60. B
Ans.65. A
Ans.70. A

Ans.2.
Ans.7. A
Ans.12.
Ans.17. B
Ans.22.
Ans.27. C
Ans.32.
Ans.37. B
Ans.42.
Ans.47. D
Ans.52.
Ans.57. C
Ans.62. B
Ans.67. A

Answer Key II
Ans.3. C
Ans.8.
Ans.13. C
Ans.18.
Ans.23. B
Ans.28.
Ans.33. B
Ans.38.
Ans.43. A
Ans.48.
Ans.53. D
Ans.58.
Ans.63. B
Ans.68. A

Ans.4.
Ans.9. A
Ans.14.
Ans.19. A
Ans.24.
Ans.29. C
Ans.34.
Ans.39. B
Ans.44.
Ans.49. B
Ans.54.
Ans.59. C
Ans.64. B
Ans.69. A

Ans.5. C
Ans.10.
Ans.15. C
Ans.20.
Ans.25. C
Ans.30.
Ans.35. C
Ans.40.
Ans.45. C
Ans.50.
Ans.55. D
Ans.60.
Ans.65. A
Ans.70. A

Ans.2. A
Ans.7. A
Ans.12. C
Ans.17. B
Ans.22. B
Ans.27.
Ans.32. C
Ans.37.
Ans.42.
Ans.47. D
Ans.52.
Ans.57.
Ans.62. B
Ans.67.

Answer Key III

Ans.3. C
Ans.8. D
Ans.13. C
Ans.18. C
Ans.23. B
Ans.28.
Ans.33.
Ans.38. B
Ans.43.
Ans.48.
Ans.53. D
Ans.58.
Ans.63.
Ans.68. A

Ans.4. D
Ans.9. A
Ans.14. D
Ans.19. A
Ans.24. B
Ans.29. C
Ans.34.
Ans.39.
Ans.44. C
Ans.49.
Ans.54.
Ans.59. C
Ans.64.
Ans.69.

Ans.5. C
Ans.10. B
Ans.15. C
Ans.20. D
Ans.25. C
Ans.30.
Ans.35. C
Ans.40.
Ans.45.
Ans.50. A
Ans.55.
Ans.60.
Ans.65. A
Ans.70.

Ans.1.
Ans.6.
Ans.11.
Ans.16.
Ans.21.
Ans.26.
Ans.31.
Ans.36.
Ans.41.
Ans.46.
Ans.51.
Ans.56.
Ans.61.
Ans.66.

C
D
C
A
B
A
D
B
C
B
D
B
A
B

Ans.2. A
Ans.7. A
Ans.12. C
Ans.17. B
Ans.22. B
Ans.27. C
Ans.32. C
Ans.37. B
Ans.42. A
Ans.47. D
Ans.52. D
Ans.57. C
Ans.62. B
Ans.67. A

Answer Key
Ans.3. C
Ans.8. D
Ans.13. C
Ans.18. C
Ans.23. B
Ans.28. C
Ans.33. B
Ans.38. B
Ans.43. A
Ans.48. D
Ans.53. D
Ans.58. B
Ans.63. B
Ans.68. A

Ans.4. D
Ans.9. A
Ans.14. D
Ans.19. A
Ans.24. B
Ans.29. C
Ans.34. C
Ans.39. B
Ans.44. C
Ans.49. B
Ans.54. B
Ans.59. C
Ans.64. B
Ans.69. A

Ans.5. C
Ans.10. B
Ans.15. C
Ans.20. D
Ans.25. C
Ans.30. D
Ans.35. C
Ans.40. D
Ans.45. C
Ans.50. A
Ans.55. D
Ans.60. B
Ans.65. A
Ans.70. A