MANAGERIAL ECONOMICS

SECTION C
QUIZ 2
TIME: 1 HOUR
SECTION A: Circle the correct answer, 1 mark each.
1.
a.
b.
c.
d.

The average product of labour is equal to

The additional labour required to produce one more unit of output.
Marginal product when average product is at a minimum.
The additional output produced by hiring one more unit of labour.
The slope of a ray drawn from the origin to a point on the total product curve.

2. The combinations of inputs is optimal

a. At points of tangency between isocosts and isoquants.
b. If the marginal revenue product is equal to the price of inputs (marginal resource
costs) for all inputs.
c. If the marginal rate of technical substitution is equal to ratio of the price of inputs.
d. All of the above.
3.
a.
b.
c.
d.

Which of the following short-run cost curves declines continuously?

Average total cost.
Marginal cost.
Average fixed cost
Average variable cost.

4.
a.
b.
c.
d.

The law of diminishing returns begins at the level of output where

Marginal cost is at a minimum.
Average variable cost is at a minimum.
Average fixed cost is at a maximum.
None of the above are correct.

5. One reason why a firm may experience increasing returns to scale is that greater
levels of output make it possible for a firm to
a. Employ more specialized machinery.
b. Obtain bulk purchase discounts.
c. Employ a greater division of labour.
d. All of the above are correct.

SECTION B: Answer the following questions, 5 marks each.

1. In his last minute preparations for final exams, Asish has set aside 5 hours to split
between studying for two subjects, Managerial Accounting and Economics. His goal
is to maximize the total marks received in the two subjects. His marks vary as
follows.
Study
Hours
0
1
2
3
4
5

Managerial
Accounting
70
78
83
88
90
92

Marginal
Product

Study
Hours
0
1
2
3
4
5

Economics

Marginal
Product

75
81
85
87
89
90

a. List the marginal values of additional hours studying the two subjects.
b. How much time should Asish spend studying each subject?
c. Suppose Asish is also taking a Statistics exam and estimates that each hour of
studying Statistics will raise his marks by 3. He has already allocated 2 hours for
Statistics (in addition to the 5 hours already mentioned). Is this an optimal decision?
Explain.

2. Dhirubhai Ambani (a wealthy industrialist) and M.F.Hussain (a famous artist) were

having lunch at an expensive restaurant. When the bill came M.F.Hussain reached for
it and said, Let me pay. I will write a check and draw a few squiggles and sign it.
The owner wont cash it and instead display it as a work of art and we will get a free
lunch. Ambani would not agree. Let me write a check. Everyone knows how rich I
am and so the owner will never cash it and instead use it just like money and so we
will have our free lunch. Who was right?

3. Use all the tools you have learned so far to analyze the following news story.