UNIT - I

1. Wants are unlimited but resources are Limited or scarce.

2. The statements that state how one should behave in a given context
are called Normative statements.
3. Managerial economics is Prescriptive in nature as it suggests the right
course of action for a given managerial problem.
4. Optimisation refers to Minimisation of costs and Maximisation of
revenues.
5. Economic forecasting and forward planning minimises Risk about the
future.
6. The statements that contain the word ought to are called _________
( a ) Prescriptive ( b ) Normative ( c ) Assertive
( d ) Negative.
7. Who said that economics is the study of nature and causes of wealth of
nations?
( a ) Paul A. Samuelson ( b ) Prof. Lionel Robbins ( c ) Adam Smith (
d ) Alfred Marshal.
8. Economics is the study of scarce resources and unlimited wants. Is
said by.
( a ) Paul A. Samuelson ( b ) Prof. Lionel Robbins ( c ) Adam Smith
( d ) Alfred Marshal.
9. Managerial economics is close to ______________
( a ) Micro economics ( b ) Macro economics ( c ) Business
economics ( d ) Theory of wages and Employment.
10. Which of the following is not covered by Managerial Economics?
( a ) Price-output decisions ( b ) Profit related decisions
( c ) Investment decisions ( d ) Foreign direct investment decisions.
11. When economists speak of the utility of a certain good, they are
referring to
( a ) The demand for the good.
( b ) The usefulness of the good in consumption.
( c ) The satisfaction gained from consuming the good.
( d ) The rate at which consumers are willing to exchange one good for
another.

12. Economists use the term Marginal Utility to mean

( a ) The additional satisfaction gained, divided by additional cost of the
last unit.
( b ) Total satisfaction gained when consuming a given number of units.
( c ) The additional satisfaction gained by the consumption of one
more unit of a good.
( d ) The process of comparing marginal units of all goods which could
be purchased.
13. The highest price that buyers are willing and able to pay for a given
quantity of a good is the
( a ) Shortage price
( b ) Surplus price
( c ) Supply price
( d ) Demand price
14. Every want supported by willingness and ability to pay constitutes
Demand for a particular product or service.
15. The relation between price and quantity demanded is Inverse.
16. Demand curve slopes Downwards from left to right.
17. _________ is exception to Law of Demand.
( a ) Income ( b ) Related goods ( c ) Price

( d ) Giffen goods.

18. _____________ is a tabular presentation which explains the

relationship between price and demand.
( a ) Demand Schedule ( b ) Demand Function ( c ) Law of demand
( d ) None.
19. A demand schedule indicates that ___________ corresponds with
________.
( a ) Higher demand price, a smaller quantity demanded.
( b ) Higher demand price, a larger quantity demanded.
( c ) Larger income, a larger demand.
( d ) The price of one good, the demand for another good.
20. Goods that are used for further processing are called Producers
goods.
21. Demand for plant and machinery is ___________ demand.
( a ) Consumers goods
( b ) Producers goods
( c ) Industry
( d ) Firm

22. The demand for a product arising out of the purchase of a parent
product is called Derived demand.
23. Other things remaining the same, the amount of quantity demanded
Increases with every fall in the price and Decreases with every rise in
the price.
24. The Law of demand says that the demand of a commodity and its
price are Inversely related, other things remaining constant.
25. The goods on which the consumer spends major portion of his
income are called Giffen goods.
26. In case of Giffens goods, the demand curve __________.
( a ) Slopes upwards.
( b ) Slopes downwards
(c ) Straight line parallel to X axis
( d ) Straight line parallel to Y axis.
27. An extension is the Downward movement and contraction is the
Upward movement along a demand curve.
28. Which of the following is an example of substitutes?
( a ) Tea and sugar ( b ) Tea and coffee
( c ) pen and ink
d ) Car and petrol.
29. Two goods that are used jointly to provide satisfaction are termed
( a ) Inferior goods
( b ) Normal goods
( c ) Superior goods
( d ) Complement goods
30. The consumer, according to economic analysis, is expected to
behave
( a ) Rationally
( b ) Emotionally
( c ) Carefully
( d ) Indifferently.
31. Which of the following has highest consumer surplus?
( a ) Necessities ( b ) Luxury goods ( c ) Comforts
( d ) Both ( b ) and ( c ).
32. In short run, firms can adjust their production by changing their
_______.
( a ) Fixed inputs ( b ) Variable inputs ( c ) Semi-variable inputs
( d ) Both ( a ) and ( b )

23. Consumption of additional apples after reaching the saturation point

leads to _______.
( a ) Fall in total utility and increase in marginal utility.
( b ) Increase in total utility and marginal utility.
( c ) Total utility to become negative and marginal utility tending to fall.
( d ) Fall in total utility leading marginal utility to become
negative.
33. Total utility is maximum when
( a ) Marginal utility is maximum
( c ) Marginal utility is zero

( b ) Marginal utility is minimum

( d ) Average utility is maximum.

34. Related goods are divided into two groups. These are Substitutes
and Complementaries.
35. When a change in the price of a good causes a change in the
quantity of the good demanded because the real purchasing power of
buyers incomes has changed, this is best attributed to the
( a ) Income effect
( b ) Substitution effect
( c ) Demand effect
( d ) Determinant effect
36. What effect is working when the price of a good falls and consumers
tend to buy it instead of other goods?
( a ) The income effect
( b ) The substitution effect
( c ) The diminishing marginal utility effect
( d ) The ceteris paribus effect
37.Demand curve slopes downward because of
( a ) The law of diminishing marginal utility
( b ) The income effect
( c ) The substitution effect
( d ) All the above

UNIT II
1. Responsiveness or Sensitiveness of demand to the change in any one
of the determinants of demand is __________.
( a ) Elasticity of demand ( b ) Price elasticity ( c ) Income elasticity
( d ) Cross elasticity
2. When any quantity can be sold at a given price and when there is no
need to reduce price, the demand is said to be __________.
( a ) Perfectly inelastic ( b ) Perfectly elastic ( c ) Relatively elastic
( d ) Relatively Inelastic
3. The demand is said to be relatively elastic when change in demand is
___________ the change in the price.
( a ) More than
( b ) Less than
( c ) Equal to
( d ) Nor
related to
4. The demand is said to be relatively inelastic when change in demand is
_________ the change in the price.
( a ) More than
( b ) Less than
( c ) Equal to
( d ) Nor
related to
5. ___________ refers to quantity demanded in response to a given
change in price.
( a ) Price Elasticity ( b ) Income Elasticity ( c ) Cross Elasticity
( d ) Promotional Elasticity.
6. Price Elasticity is always _________.
( a ) Positive ( b ) Negative ( c ) Consistent

( d ) Declining.

7. When a significant degree of change in price leads to either little or no

change in the quantity demanded, then the demand is said to be
________.
( a ) Perfectly Elastic ( b ) Perfectly Inelastic ( c ) Unit Elasticity
( d ) Relatively Elastic
8. When e = 0 elasticity of demand is ________.
( a ) Perfectly Elastic ( b ) Perfectly Inelastic ( c ) Unit Elasticity
( d ) Relatively Elastic

9. When e = 1 elasticity of demand is _________.

( a ) Perfectly elastic ( b ) Perfectly inelastic ( c ) Unitary
( d ) Relatively elastic
10.
The income elasticity of demand is negative for a
( a ) Positive good
( b ) Normal good
( c ) Elastic good
( d ) Inferior good
11.
If the income elasticity of demand is greater than 1, the good is a
Luxury.
12.
Price of a product is raised from Rs.20 to Rs.30. Quantity
demanded falls from 100 units to 70 units a day. What is the elasticity of
demand for the product?
(a)
(b)
(c)
(d)
13.
Demand for petrol is ___________.
( a ) Elastic
( b ) Inelastic
( c ) Perfectly elastic
Perfectly inelastic.

(d)

14.
If the price of Sunsilk shampoo decreases relative to the price of
Clinic Plus, the demand for
( a ) Clinic Plus decreases
( b ) Clinic Plus increases
( c ) Demand for Clinic Plus remains unchanged
( d ) Demand for Sunsilk increases.
15.
__________ goods hold negative income elasticity of demand.
( a ) Inferior goods
( b ) Luxury goods
( c ) Superior goods
( d ) Necessities.
16.
The price of potato increases by 10 percent and the quantity of
potato demanded falls by 12 percent. This indicates that the demand
for potato is _________.
( a ) Perfectly inelastic
( b ) Perfectly elastic
( c ) Relatively elastic
( d ) Relatively Inelastic

17.
A product with lesser number of substitutes enjoys inelastic
demand.
18.
Cross elasticity of demand refers to the proportionate change in
quantity demanded of a product in response to a proportionate change
in the price of related good.
19.
Forecasts in terms of total sales can be viewed as __________
forecast.
( a ) Specific
( b ) General
( c ) Determined
( d ) None.
20.
Which of the following is not a demand forecasting method?
( a ) Time series ( b ) Moving Averages method
( c ) Simultaneous equation method
( d ) Static approach
21.
If the company wishes to collect the opinion of all the buyers, this
method is called _______
( a ) Census method or Total enumeration method
( b ) Least squares method.
( c ) Expert opinion method.
( d ) Exponential smoothing method.
22.
Survey method is considered more advantageous
( a ) when the buyers are in large numbers.
( b ) When buyers are inaccessible.
( c ) When the product is new to the market for which no date
previously exists.
( d ) None.
23.
The sales force method is not appropriate when
( a ) Salesmen dont know the sources of information.
( b ) Salesmen for a lobby.
( c ) Bias factor can be corrected by means of growth factor.
( d ) Sales persons have most knowledge of sources of information.
24.
__________ results from the sporadic occurrence of strikes, riots
and so on.
( a ) Trend
( b ) Cyclic trend
( c ) Seasonal trend ( d ) Erratic
trend.

25.
The main shortcoming of moving averages method is _________.
( a ) It is easy to complete.
( b ) Old data can be dispensed once the averages are completed
( c ) Original data is further used as the forecast for the next period.
( d ) That it gives equal weightage to the data both in the recent
past and the earlier one.

UNIT III
Production Function
1. Production is an activity that creates utility or value.
2. Production is an organised activity of transforming inputs into
output.
3. The ratio of input to output is called Productivity.
4. Write Cobb-Douglas production function.
Y = A.K . L
Y = Output
K = Capital
L = Labour
A, = Positive constants
5. Law of Variable proportions is also called Law of diminishing
marginal utility.
6. When two inputs are variable and other inputs are constant,
Equal quantity produced with varying proportions, these two
variables is called Isoquants.
7. The locus of different combinations of inputs, which yield same
output is Isoquant.
8. The product indifference curve is also called Isoquant or
Isoproduct curve.
9. An Isoproduct curve convex to the origin reveals that the input
factors are not perfect substitutes.
10.

The rate at which one input factor is substituted with the other to
attain a given level of output is called Marginal rate of technical
substitution.

11.

The lowest point of cost of production is observed where the

slope of isoquant is equal to that of isocost.

12.

The economies that accrue to all the firms in an industrial estate

are called External Economies.

13.

What are the three stages in Law of variable proportions?

( 1 ) Law of Increasing returns to scale
( 2 ) Law of Decreasing/Diminishing returns to scale
( 3 ) Law of Negative returns to scale

14.

How many stages are there in Law of returns to scale?

Three stages.
( 1 ) Law of Increasing returns to scale
( 2 ) Law of Constant returns to scale
( 3 ) Law of Decreasing returns to scale.
Break Even Analysis & Cost Analysis

1. Variable cost per unit

( a ) Remains fixed
( b ) Fluctuates with the volume of production
( c ) Varies with the volume of sales
( d ) None
2. Fixed cost per unit increases when
( a ) Production volume decreases
( b ) Production volume increases
( c ) Variable cost per unit decreases.
( d ) None
3. Profit volume ratio is also known as Contribution to sales ratio.
4. Contribution is also known as Gross margin.
5. At Break-even point the revenue of the business equals costs
(TR=TC)
6. When fixed cost is Rs.15,000 and P/V ratio is 50%, the break-even
point will be
( a ) Rs.30,000
( b ) Rs.60,000
( c ) Rs.40,000
( d ) Rs.50,000

7. When P/V ratio is 40% and sales value is Rs.20,000, the variable
cost will be
( a ) Rs.10,000
( b ) Rs.12,000
( c ) Rs. 8,000
( d ) None of the above
8. The excess of actual production over and above the break-even
point of production is called Margin of safety.
9. A total sale minus sales at break-even point is known as Margin of
safety.
10. Contribution is Selling price minus Variable cost or Fixed cost
plus Profit.
11. Direct labour and direct material cost is an example for Variable
cost.
12. When variable cost and fixed cost decreases, the BEP
Decreases.
13.

When selling price per unit decreases, the BEP Increases.

14.

Break-even analysis is also called Cost-volume-profit analysis.

15.

The angle formed at BEP is called Angle of incidence.

16. _________ is the earnings foregone for not selecting the next
best alternative.
( a ) Opportunity cost
( b ) Absolute cost
( c ) Sunk cost
( d ) Incremental cost
17. Opportunity cost helps in
( a ) Ascertainment of cost
( b ) Controlling cost
( c ) Making managerial decisions
18. _________ is the additional cost incurred to produce an
additional output.
( a ) Average cost
( b ) Marginal cost

( c ) Total cost
( d ) Variable cost
19.

Variable cost varies with the level of production.

20. Interest on own capital is a ___________ cost.

( a ) Explicit cost
( b ) Implicit cost
( c ) Opportunity cost
( d ) Future cost
21. Incremental cost refers to the additional cost incurred due to the
change in the level or nature of activity.

UNIT - IV

1. A Monopoly that emerges because of economies of scale is called a

Natural monopoly.
2. Which of the following is a condition of monopoly?
( a ) Two or more sellers
( b ) Only one buyer
( c ) A good with several close substitutes
( d ) Barriers to entry
3. The marginal revenue curve for a monopolist is Downward-sloping.
4. Market power in the form of a monopoly creates benefits for the
Seller at the expense of the Buyer.
5. A market where large number of buyers and sellers dealing in
homogenous product with perfect knowledge is called Perfect
Competition.
6. Selling goods to another country at a price below the cost of
production is known as Dumping.
7. A firm prevents competitors from entering the market by temporarily
pricing its goods below cost, thus driving new entrants out of
business. This practice is known as Predatory Pricing.
8. A market with two firms competing is known as a Duopoly.
9. A firm faces a small number of competitors. This firm is competing in
an Oligopoly.
10. Price discrimination refers to the practice of selling the same
product at different price to different buyers.
11.

Conditions to attain Equilibrium status:

( 1 ) Marginal cost should be equal to that of Marginal
revenue.
( 2 ) Marginal cost curve should cut Marginal revenue curve
from below.

12.

For a monopolist, to be in equilibrium, the marginal cost curve

should cut marginal revenue curve from below.

13.

Product differentiation is the main feature of monopolistic

competition.

14.

The market with many producers/sellers, each producing a

differentiated product, is called Monopolistic competition.

15.

The point of intersection between the demand and supply curves

gives rise to Equilibrium price.

16.

In monopoly, the marginal revenue is less than Average

revenue.

17.

The seller/firm is a price taker in perfect competition.

18.

In a Monopolistic competition, the products are similar but not

identical.

19.

Product differentiation is key element in monopolistic

competition

20.

The method of pricing where selling price is based on variable

cost is called Marginal cost pricing.

21.

The pricing strategy where the company fixes very high price for

22.

In Market penetration pricing strategy, the products or services

are offered at the lowest price, when they are introduced.

23.

Penetration pricing method is used to enter the market

Aggressively.

24.

If AR < AC monopolist earns Loss.

25.

Either price or output is determined leaving the other to the

market in Monopoly Market.

26.

When no supplier is entering into market or exiting from the

market then the industry is said to be in state of Equilibrium.

27.

The price below which the seller refuse to sell is called Reserve
price.

28.

Charging a price, what market is ready to bear is Perceived

Price.