Section A
All questions carry equal marks.
Q.1 How does economic theory contribute to managerial decisions?
Q.2 Explain the law of demand. Briefly discuss the exception to the law of demand.
Q.3 Explain the various components of demand function.
Q.4 (i) Given the demand function
Qd = 12 œ p
a) Find the demand and revenue schedules.
b) Find the MR when P œ 10, 6 and 2.
(ii) Distinguish between linear and non linear demands functions.
Q.5 Explain the trend projection method of demand forecasting?
Section B
Q.1 Explain the concepts of return to scale and returns to a factor.
Q.2 Explain the following:-
• Opportunity Costs
• Fixed Costs
• Social and Private Costs
• Sunk Costs
Q.3 Explain the relationship among the average total cost marginal cost and average variable costs.
Case Study
DEMAND FORECASTING FOR CABLES
The market research department of M/s. Bengal Cable Company, Calcutta was entrusted with forecasting the demand for cables of the company. It was felt that the demand for cables is considerably influenced by the pace of industrialization, power development transmission and industrial and house wiring. Bengal Cable Company is exclusively engaged in the manufacture of required by industry and housing.
While many factors such as the rate of building activity purchasing power, etc. are important in determining the demand for cables, it was felt that most of the demand for cables can be explained in terms of the growth of power consumption in the country.
Since for industry and buildings, cables are a must, the price factor was not considered as significant variable in determining the demand for cables. After all this product has no substitute.
The market research department of M/s Bengal Cable Company, Calcutta, developed a model relating all India cable sales (Industrial and housing cables) to the peak demand for power in the country. The analysis based on time series data has shown a strong positive correlation between all India cable sales and the peak demand for the corresponding year.
The estimating equation is as follows :-
Yt = 1173 + 28.5 Xt
Where Yt = annual cable sales 9in thousand coils) for all India in year t
Xt = peak demand in million K.W. in year t
r 2 = 0.94
The Central Electricity Authority of the Government of India has estimated the peak demand for the year 2004 as 98.5 million K.W., taking into account likely industrial and building growth and the availability of power on an all India basis. As there is no marked seasonal fluctuation, it is considered proper to assume uniform monthly cable sales throughout the year. It is estimated that Bengal Cables market share in 2004 will be about 20 percent.
Questions
1. Find out the all India cable demand for the year 2004 and monthly estimated sales of Bengal cables Company.
2. The price factor was not considered important in forecasting all India demand for cables. Will the same be true in estimating demand for the company‘s cables?
3. Suppose the market share of the company during the previous two years was 10 and 15 percent respectively. Was, therefore the company justified in assuring the market share as 20 percent?
Assignment
(Objective type Questions)
Q.1 In order to maximize profit, the firm follows:-
a. Incremental concept
b. Equiœmarginal principal
c. Discounting principle
d. None of these
Q. 2 In choosing between beef 7 shirts, consumers increase their purchases of each until
a. the marginal utility from the last rupee spent on one is the same as on the other
b. the marginal utility from the last pound of beef is the same as from the last shirt
c. the total utility from one is the same as from the other
d. none of the above.
Q.3 Which of the following is a fixed cost?
a. cost of machinery
b. wages
c. cost of plant
d. "a‘ and "d‘
Q.4 In the long run there are no
a. fixes costs
b. variable costs
c. normal profits
d. economies f scale
Q.5 Marginal cost can be defined as the
a. cost of the most efficiently produced item
b. change in fixed cost resulting from one more unit of production
c. difference between fixed and variable cost at any level of output
d. amount one more unit of output adds to total cost.
Q. 6 Fixed cost s are those costs
a. that are subject to diminishing marginal productivity
b. that are embodied in the calculation of marginal cost
c. that are independent of the rate or output
d. that are implicit to a competitive firm.
Q. 7 A purely competitive firm is in short run equilibrium and its MC exceeds its A3.
It can be included that
a. firms will leave the industry in the long run
b. the firm is realizing an economic profit
c. the firm is realizing a loss
d. this is an increa sing cost industry
Q.8 The competitive sellers short-run supply curve is
a. synonymous with its marginal cost curve
b. its marginal revenue curve
c. that part of its marginal cost curve lying above average variable cost
d. its average fixed cost curve.
Q. 9 The monopolistic firms demand curve
a. is always inelastic
b. coincides with its marginal revenue curve
c. is perfectly elastic
d. is less elastic than a purely competitive firms demand curve.
Q.10 If an imperfectly competitive firm is selling its 100th unit of output for $35, its
marginal revenue
a. will be greater than $35
b. will be less than $35
c. will also be $35
d. may be either greater or less than $35
Q. 11 Which of the following statements is incorrect?
a. A pure monopolistic demand curve is the industry demand curve
b. A monopolistic firm produces a product for which there are no close substitutes.
c. The monopolists marginal revenue is less than price for any given output greater than one
d. A monopolists pre-eminent market position ensures economic profits
Q.12 A pure monopolists demand curve
a. lies below its marginal revenue curve
b. lies above its marginal revenue curve
c. coincides with its marginal revenue curve
d. is linked at the profit maximizing price
e. is perfectly inelastic
Q.13 For an imperfectly competitive firm,
a. the marginal revenue curve will lie below the demand curve because any reduction in price applies only to the extra units sold
b. the marginal revenue curve will lie below the demand curve because any reduction in price applies to all units sold
c. the marginal revenue curve will lie above the demand curve because any reduction in price applies to all units sold
d. Total revenue is a straight, upsloping line because a firms sales are independent of product price.
Q.14 For in imperfectly competitive firm,
a. marginal revenue will become zero at that output where the revenue is at a maximum
b. the demand curve will intersect the horizontal axis at the point where total revenue is at a maximum
c. the demand and ma rginal revenue curves will coincide
d. the marginal revenue curve will lie above the demand curve.
Q.15 When setting its price, an oligopoly
a. does not have to worry about how its rivals will react to its price
b. knows how its rivals will react to its price
c. is uncertain about its rivals reaction
d. none of the above
Q. 16 A firm facing a linked demand curve expects that its competitors
a. will match its price increase but not its price decrease
b. will match its price decrease, but not its price increase
c. will match any price change it may make
d. will not match any price change
Q.17 Monopolistic competition differs from perfect competition because
a. there are many sellers
b. there is free-entry of new firms
c. each firm sells a differentiated product
d. all of the above
Q.18 The feature of monopolistic competition that drives a firms profit to zero in the long run is
a. product differentiation
b. price leadership
c. market power
d. free entry
Q.19 A purely competitive firm will be willing to produce at a loss in the short run provided.
a. the loss is no greater than its variable costs
b. the loss is no greater than its marginal costs
c. the loss is no greater than its fixed costs
d. price exceeds ma rginal costs
Q.20 The demand curve faced by a pure monopolist
a. is more elastic than that faced by a single purely competitive firm
b. has the same elasticity as that faced by a single purely competitive firm
c. is less elastic than that faced by a single purely competitive firm
d. may be either more or less elastic than that faced by a single purely competitive firm.
Q. 21 A pure monopolist
a. always realizes an economic profit
b. will realize an economic loss if MC intersects the down sloping portion of MR
c. will realize an economic profit if ATC exceeds MR at the equilibrium output.
d. Will realize an economic profit if price exceeds ATC at the equilibrium output.
Q.22 In the short run, a pure monopolists profits.
a. will be zero
b. are always positive
c. may be positive, zero, or negative
d. will be maximized where price equals average cost.
Q.23 Price discrimination refers to
a. the difference between the prices a purely competitive seller and a purely monopolistic seller would charge
b. the selling of a given product at different prices that do not reflect cost differences
c. any price above that which is equal to minimum average total cost
d. selling a given product for different prices at two different points in time.
Q.24 Which of the following is not a precondition for price discrimination?
a. the seller must possess some degree of monopoly power
b. the seller must be able to segment the market; that is, the seller must distinguish buyers with different elasticities of demand.
c. The good or service cannot be resold by original buyers.
d. The commodity involved must be a durable good.
Q.25 If a pure monopolist is producing a level of output in excess of the MR=MC output,
a. it will be in the interest of the firm and society to reduce output
b. it will be in the interest of the firm and society to increase output
c. it will be in the interest of the firm, but not necessarily of society, to reduce output
d. the firm may, or may not, be maximizing profits.
Q.26 A non discriminating monopolist
a. may produce where demand is either elastic or inelastic , depending upon the level of production costs
b. will never produce in the output range where demand is elastic
c. will never produce in the output range where demand is inelastic
d. will never produce in the output range where marginal revenue is positive.
Q.27 Monopolistic competition resembles pure competition because
a. barriers to entry are either weak or nonexistent
b. both industries entail the production of differentiated products
c. in both instances firms will operate at the minimum point on their long run average cost curve
d. both industries emphasize non price competition.
Q.28 The monopolistically competitive sellers demand curve will tend to become more elastic, the
a. smaller the number of competitors
b. larger the number of competitors
c. greater the degree of product differentiation
d. more significant the barriers to entering the industry
Q.29 The monopolistically competitive seller maximizes profits by producing at the point where
a. marginal revenue equals average cost
b. price equals marginal revenue
c. marginal revenue equals marginal cost
d. average costs are at a minimum
Q.30 In the short run, a monopolistically competitive firms economic profits
a. will always be zero
b. are always positive
c. may be positive, zero, or negative
d. will be maximized where price equals average cost.
Q.31 The larger the number of firms and the smaller the degree of product differentiation, the
a. More elastic is the monopolistically competitive firm‘s demand curve.
b. Less elastic is the monopolistically competitive firm‘s demand curve.
c. Larger will be the monopolistically competitive firm‘s fixed costs.
d. Greater the divergence between the demand and the marginal revenue curves of the monopolistically competitive firm.
Q.32 If the number of firms in a monopolistically competitive industry increases and the degree of product differentiation diminishes.
a. the likelihood of collusive pricing would increase.
b. the industry would more closely approximate pure competition.
c. Individual firms would now be operating at outputs where their average total costs would be higher
d. The likelihood of realizing economic profits in the long run would be enhanced.
Q.33 Oligopolistic industries are characterized by
a. a few dominant firms and substantial entry barriers.
b. a few dominant firms and substantial entry barriers.
c. a large number of firms and low entry barriers.
d. a few dominant firms and low entry barriers.
Q.34 One would expect that collusion among oligopolistic producers would be easiest to achieve in which of the following cases?
a. a very few forms producing a homogeneous product.
b. a rather number of firms producing a homogeneous product.
c. a very few firms producing a differentiated product.
d. a rather large number of firms producing a differentiated product.
Q.35 Under which of the following market structures will equilibrium price be equal to marginal cost?
a. pure competition
b. pure monopoly
c. monopolistic competition
d. oligopoly
Q.36 Which of the following is a unique feature of oligopoly?
a. non price competition
b. product differentiation
c. advertising expenditures
d. mutual interdependence
Q.37 -Mutual interdependence" means that each firm
a. produces a product similar but not identical to the products of its rivals
b. produces a product identical to the products produced by its rivals
c. must consider the reactions of its rivals when it determines its price policy
d. faces a perfectly elastic demand for its product
Q.38 A firms short run supply is constructed from its
a. fixed cost
b. short run marginal cost and average variable cost
c. average fixed cost
d. none of the above
Q. 39 In defining costs
a. economists take implicit opportunity costs into account, but a ccountants do not
b. accountants take implicit opportunity costs into account, but economists do not
c. both take implicit opportunity costs into account
d. neither take implicit opportunity costs into account.
Q.40 A firms costs are related in the following way
a. AC cuts a verage variable cost (AVC) at the minimum point of AVC
b. AC cuts marginal cost MC at the minimum point of MC
c. MC cuts AC at the minimum point of AC
d. None of the above.