Semester End Examination Jan 2016

Exam Date: 1/25/2016

MBA IB (1st Semester)

AMB106 - Managerial Economics
1.
2.
3.
4.

Section A: Case Study Total 5 Questions, each question carries 4 marks.

Section B: Total 50 Questions, each question carries 1 mark.
All questions are compulsory.
There is no negative marking for wrong answers.

Section A: CASE STUDY

As per 2011 census, India had a population of 1.2 billion. Of these only 120 million people have a credit history
according to Credit Information Bureau of India Limited( CIBIL). And this is the target customer base for credit
advisory firm Credit Vidya. Co- founded by Rajiv Raj and Abhishek Agarwal, Credit Vidya was launched with a social
mission at its core - educate customers so that they can better monitor and manage credit aspect of their financial
health. Complimenting their skills was Madan Mohan, a 33 year old veteran in Indian banking who had also worked on
consumer education during his stint at Disha Counseling, an ICICI Bank initiative. And hence, a team of experts from
backgrounds as diverse as financial services, consumer banking, credit counseling, retail lending, and technology was
formed with one common goal in mind - empower people so that they can make smarter financial decisions. "Starting
a venture on credit education was a passion which I had been nurturing for a few years. The conviction grew with my
experience in retail banking and credit bureau sectors. I found that most of them don't understand credit. While
working with credit bureau I realized that over 95% of the individuals I had met were not aware about the credit
bureau and how it would impact their lives. In India credit education is an area, which is grossly lacking and
individuals have no clue whether the loan products, which they avail are the right one for them," said Rajiv.
Ques : 1 Short-run marginal cost is equal to
Option A
Option B
Option C
Option D

the change in total cost divided by the change in output.

the change in total variable cost divided by the change in output.
the cost per unit of the variable input divided by the marginal product of the variable input.
all of the above.

Ques : 2
Option A
Option B
Option C
Option D

Short-run average variable cost is equal to

total variable cost divided by output.
average total cost minus average fixed cost.
the cost per unit of the variable input divided by the average product of the variable input.
all of the above.

Ques : 3
Option A
Option B
Option C
Option D

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

Average total cost
Marginal cost
Average fixed cost
Average variable cost

Ques : 4 The law of diminishing returns begins at the level of output where
Option A marginal cost is at a minimum.
AMB106

Semester End Examination Jan 2016

Exam Date: 1/25/2016

MBA IB (1st Semester)

AMB106 - Managerial Economics
Option B average variable cost is at a minimum.
Option C average fixed cost is at a maximum.
Option D None of the above is correct.
Ques : 5
Option A
Option B
Option C
Option D

The long-run average cost curve is at a minimum at a level of output where

the firm is experiencing constant returns to scale.
it is equal to long-run marginal cost.
the long-run average cost curve is tangent to the lowest point on a short-run average total cost curve.
all of the above occur.

Section B
Ques : 6
Option A
Option B
Option C
Option D

Which of the following factors of production is likely to be fixed in the short run?
The location of the firm.
The number of employee-hours.
The amount of electricity consumed.
The amount of paper used.

Ques : 7
Option A
Option B
Option C
Option D

A price taker confronts a demand curve for his/her output that is

vertical at the market price.
upward sloping.
downward sloping.
horizontal at the market price.

Ques : 8 When the marginal return to the use of a variable factor of production is diminishing, the firm's marginal
cost curve is
Option A upward sloping.
Option B convex.
Option C parallel to the vertical axis.
Option D downward sloping.
Ques : 9
Option A
Option B
Option C
Option D

The common objective that in economics is assumed to be shared by all private sector capitalist firms is to
be a responsible member of the community.
provide the minimum amount of customer service possible.
maximize profits.
treat workers fairly.

AMB106

Semester End Examination Jan 2016

Exam Date: 1/25/2016

MBA IB (1st Semester)

AMB106 - Managerial Economics
Ques : 10
Option A
Option B
Option C
Option D

Suppose a perfectly competitive firm is making a loss, but decides that (for the moment) it is not going to
shut down. It should choose the output for which
total costs are minimized.
price equals marginal costs.
total revenues are maximized.
the costs of the variable factors of production are minimized.

Ques : 11
Option A
Option B
Option C
Option D

Which of the following is not a characteristic of a perfectly competitive market?

All firms sell the same standardized product.
The market has many buyers and sellers.
Productive resources are mobile.
There are high barriers to entry.

Ques : 12
Option A
Option B
Option C
Option D

In which of the following short run scenarios should a firm shut down?
Price is less than average cost.
Price is less than marginal cost.
Price is less than average variable cost.
Price is less than average fixed cost.

Ques : 13
Option A
Option B
Option C
Option D

Which of the following is not a determinant of supply?

Technology.
Consumers income.
Input prices.
The number of suppliers.

Ques : 14
Option A
Option B
Option C
Option D

The amount by which price received for a unit of output exceeds the seller's reservation price is called
Producer surplus.
profit.
consumer surplus.
net surplus.

Ques : 15 Consider a market for wheat which has an equilibrium price of 50/tonne and an equilibrium quantity of
1000 tonnes per day. Suppose the minimum price the farmers are willing to accept to produce wheat at all
is 10/tonne. The supply curve is a straight line. How much producer surplus do the farmers in this market
reap? .
Option A 5000
Option B 30000
Option C 25000
Option D 20000
AMB106

Semester End Examination Jan 2016

Exam Date: 1/25/2016

MBA IB (1st Semester)

AMB106 - Managerial Economics
Ques : 16
Option A
Option B
Option C
Option D

After a price floor is imposed above equilibrium, the total economic surplus in that market will:
be reallocated from producers to consumers.
remain unchanged.
rise.
fall.

Ques : 17
Option A
Option B
Option C
Option D

Which of the following is not guaranteed by the efficiency of the market equilibrium?
Price represents the value of an extra unit of consumption.
Rich and poor will have adequate access to the good.
Price represents the cost of an extra unit of production.
Neither shortage nor surplus will exist.

Ques : 18
Option A
Option B
Option C
Option D

The more elastic demand is the ______ the burden of the tax borne by ______.
smaller; consumer and producers
larger; consumers
larger; producers
smaller; producers

Ques : 19
Option A
Option B
Option C
Option D

Which of the following statements expresses the justification for making efficiency the first goal of
economic interaction?
Efficiency gives the poor an incentive to improve their economic status.
Since consensus on what is a fair distribution of goods is impossible, efficiency is the next best goal.
People are not really concerned about the problems of the poor.
Efficiency maximizes total economic surplus and thereby allows other goals to be more fully achieved.

Ques : 20
Option A
Option B
Option C
Option D

The more inelastic is supply the ______ is the burden of tax borne by ______.
larger; producers and consumers
smaller; consumers and producers
smaller; producers
smaller; consumers

Ques : 21
Option A
Option B
Option C
Option D

A public utility should set price equal to _______ if its goal is to maximize economic surplus.
average cost
average revenue
marginal revenue
marginal cost.

AMB106

Semester End Examination Jan 2016

Exam Date: 1/25/2016

MBA IB (1st Semester)

AMB106 - Managerial Economics
Ques : 22
Option A
Option B
Option C
Option D

The reduction in total economic surplus that results from the adoption of a policy is called _________.
deadweight loss
externality loss
collateral damage
welfare loss

Ques : 23
Option A
Option B
Option C
Option D

When the supply curve for a good is perfectly ________, the burden of a tax collected from sellers falls
entirely on _______.
elastic; buyers
elastic; sellers
inelastic; buyers
vertical; buyers

Ques : 24
Option A
Option B
Option C
Option D

Taxes on activities that cause harm to others

discourage people from pursuing the harmful activities.
generate revenue to pay for useful public services.
encourage people to pursue the harmful activities even more.
Both A and B.

Ques : 25
Option A
Option B
Option C
Option D

Price subsidies to sellers

prevent sellers from charging less than a certain amount.
lead to efficiency in the market.
must be above equilibrium price to have an effect on the market.
result in a loss in total economic surplus.

Ques : 26
Option A
Option B
Option C
Option D

Which of the following would be an example of the allocative function of price?

A consumer deciding that at the present price for steak she will buy less to reduce her cholesterol.
Losing 50 at a roadside rest stop.
Switching from a Ph.D. in economics to a Ph.D in finance because finance salaries are higher.
Getting a hospitality suite seat at Old Trafford for free.

Ques : 27
Option A
Option B
Option C
Option D

Barriers to entry
will be established by firms earning economic losses.
are forces that limit new firms from joining an industry.
have little impact on the ability of the invisible hand to allocate resources efficiently.
are always illegal.

Ques : 28

e-commerce and an Internet presence are important projects to many firms, requiring employees with

AMB106

Semester End Examination Jan 2016

Exam Date: 1/25/2016

MBA IB (1st Semester)

AMB106 - Managerial Economics
Option A
Option B
Option C
Option D

specialized skills that are in short supply. The invisible hand solves the employment problem by:
having the government announce the shortage.
giving selfish workers the incentive to acquire the skills in order to receive high wages.
allowing the few employees with the skills to exploit the firms.
moving slowly until the e-commerce craze ends.

Ques : 29
Option A
Option B
Option C
Option D

If all firms in a perfectly competitive industry are experiencing economic losses, firms will
enter the industry, seeking new opportunities.
exit the industry, stopping when accounting profits equal zero.
continue in the industry, hoping for better times.
exit the industry, stopping when economic profits equal zero.

Ques : 30
Option A
Option B
Option C
Option D

The rationing and allocative functions of price

work in opposition to each other.
are mutually exclusive.
work together to guide resources to their highest value.
produce disequilibrium in the market.

Ques : 31

If a single firm, belonging to a perfectly competitive industry in long run equilibrium, discovers and patents
a significant cost saving methodology, then
all firms will enjoy economic profits for a short period of time..
the rest of the industry will quickly adopt the new methodology.
the firm will enjoy economic profits for a period of time.
their firm will lower price to drive the rest of the industry out of business.

Option A
Option B
Option C
Option D

Ques : 32 Suppose the government grants grain subsidies to poor farmers to raise farm family incomes.
Option A Poor farm families are made permanently better off.
Option B As the profits of farming increase, new farmers will emerge from other sectors and drive down the recent
profits to zero.
Option C As new farmers enter, government will lessen the size of the subsidy.
Option D The quality of grains will fall..
Ques : 33
Option A
Option B
Option C
Option D

In regulated markets, the invisible hand

is irrelevant.
will guide resources on some basis other than the price that is regulated.
serves to allocate resources on the basis of price as in unregulated markets.
becomes truly invisible.

AMB106

Semester End Examination Jan 2016

Exam Date: 1/25/2016

MBA IB (1st Semester)

AMB106 - Managerial Economics
Ques : 34
Option A
Option B
Option C
Option D

The present value of 13,000 paid 3 years from today with an interest rate of 5% is
13000
11230
8667
4127

Ques : 35
Option A
Option B
Option C
Option D

Applying the no cash on the table principle to the stock market means new information
provides opportunities to the first few who act on it.
provides opportunities to all investors.
was already contained in the stock price.
provides opportunities to the last few who act on it.

Ques : 36
Option A
Option B
Option C
Option D

The correct sequence of market structures from most to least competitive is

pure monopoly, oligopoly, perfect competition, monopolistic competition.
oligopoly, pure monopoly, perfect competition, imperfect competition.
perfect competition, monopolistic competition, oligopoly, pure monopoly.
perfect competition, imperfect competition, pure monopoly.

Ques : 37
Option A
Option B
Option C
Option D

A firm that emerges as the only seller in an industry with economies of scale is a(n)
monopoly
oligopoly
monopsony.
natural oligopoly.

Ques : 38
Option A
Option B
Option C
Option D

The profit maximizing rule MR = MC applies to

all firms.
monopolists only.
perfect competitors only.
monopolistic competitors only.

Ques : 39
Option A
Option B
Option C
Option D

Given the total cost function, TC = a + bQ with (a,b) > 0, average costs will
be approximately constant over most of the output range.
fall at first and then rise as output rises.
fall over the entire range of output.
rise at first and then fall as output rises.

Ques : 40 If a firm triples all its inputs and output triples as a result, then the firm
Option A has increasing returns to scale.

AMB106

Semester End Examination Jan 2016

Exam Date: 1/25/2016

MBA IB (1st Semester)

AMB106 - Managerial Economics
Option B has economies of scale.
Option C has constant returns to scale.
Option D will have lower total costs.
Ques : 41
Option A
Option B
Option C
Option D

If the monopolist's demand curve is P = 70 - 14Q, then the slope of the marginal revenue curve is
-28
-14
-7
-1

Ques : 42 Suppose a competitive firm and a monopolist are both charging 5 for their respective outputs. One can
infer that
Option A marginal revenue is 5 for both firms.
Option B marginal cost is 5 for the competitive firm & less than 5 for the monopolist.
Option C marginal revenue is less than 5 for both firms.
Option D the competitive firm is charging too much and the monopolist too little.
Ques : 43 Network economies are
Option A Confined to sectors such as telecommunications and energy
Option B Something that explains how competition between suppliers can result in one, or a small number of suppliers
surviving
Option C Something that more or less guarantees a supplier of freedom from the threat of competition
Option D Something that rquires taking affected industries into state ownwership for efficiency reasons
Ques : 44
Option A
Option B
Option C
Option D

Cost plus regulation

Creates incentives for regulated firms to increase costs
Creates incentives for firms to innovate
Holds down prices because firms are not allowed to reduce cost price margins
Means that firms will cut corners on quality to reduce costs

Ques : 45
Option A
Option B
Option C
Option D

Price discrimination
Reduces economic efficiency because it raises the average price paid for goods
Increases economic efficiency because it reduces deadweight loss
Increases economic efficiency because it brings price closer to marginal cost
B&C

Ques : 46 The key feature that requires the use of game theory to comprehend behavior is
Option A profit maximization.

AMB106

Semester End Examination Jan 2016

Exam Date: 1/25/2016

MBA IB (1st Semester)

AMB106 - Managerial Economics
Option B limited information.
Option C utility maximization.
Option D interdependency.
Ques : 47
Option A
Option B
Option C
Option D

The assumption that individuals act out of narrow self-interest is

a reasonable first approximation..
offensive.
rarely justified.
only justified for monetary decisions.

Ques : 48
Option A
Option B
Option C
Option D

Which of the following is not a requirement of a game?

Players.
Payoffs.
Dominant strategies.
Strategies.

Ques : 49
Option A
Option B
Option C
Option D

The prisoner's dilemma refers to games

involving criminals.
without dominant strategies.
without a Nash equilibrium.
where the playing of dominant strategies leads to a less desirable equilibrium.

Ques : 50
Option A
Option B
Option C
Option D

Which of the following problems would not require decision tree analysis?
A football player choosing between a new contract with his current club
A manager of a rural, isolated petrol station considering a price cut.
Choosing a university to attend and course of study to pursue.
Negotiating the price of a new car.

Ques : 51
Option A
Option B
Option C
Option D

The statement "If you don't pay what you owe, then I will kill you" is a credible
threat when spoken by someone's mother.
promise when spoken by someone's bank manager.
threat when spoken by someone's significant other.
threat when spoken by one of someone's mafia partners.

Ques : 52
Option A
Option B
Option C

The residual demand curve for an oligopolist shows

The amount of the market left for the other firm or firms.
The demand for the oligopolist's output at any price.
The demand for the oligopolist's output given what the other firm or firms are producing.

AMB106

Semester End Examination Jan 2016

Exam Date: 1/25/2016

MBA IB (1st Semester)

AMB106 - Managerial Economics
Option D What the oligopolist will produce if he can cover his costs.
Ques : 53
Option A
Option B
Option C
Option D

In a Cournot duopoly a Nash equilibrium occurs

where the firms' reaction curves intersect.
at any level of output where the market is shared equally.
when one player supplies the entire market.
when each player's price is the best it can set given the payoffs from pricing decisions to the other player.

Ques : 54 The Bertrand paradox refers to

Option A The fact that in equilibrium unit prices under Bertrand competition must always be the same for all players.
Option B A situation in which the players' reaction curves do not intersect.
Option C The fact that if firms charge the same unit price they may not sell the same quantity.
Option D The possibility that all that is necessary for prices to be the same as in competitive markets is for there to be
two firms competing in a market.
Ques : 55
Option A
Option B
Option C
Option D

Tacit conclusion excludes which of the following:

Prices being similar as between firms.
Formal agreements on market sharing.
Price wars occurring.
Threats to undercut a rival firm's prices.

AMB106