Mid-Term Examination, Spring 2012

_______________________________________________________________________

Course : Managerial Economics Full Marks: 100
Level : Masters Pass Marks: 60
Program : EMBA Sem 1 Time: 4 hours
_______________________________________________________________________

Candidates are required to give their answers in their own words as far as practicable.

Group A
Attempt any TWO questions

1. ABC company has the following demand and cost functions:
P = 25 0.5Q (demand) and
C = 1.5Q
2
+ 5Q + 10 (cost)
Here Q is quantity in units, P is price in rupees and C is cost in rupees.
Calculate price P and total Profit of the company under the objectives of:
i) Profit maximization
ii) Sales Revenue maximization (Note: Sales Revenue Maximization condition : MR = 0)
(20)

2. Assume the production function: Q = 20K
0.5
L
0.5

If the price of capital is Rs.5 per unit and the price of labour is Rs. 4 per unit, determine the
equation of expansion path for the firm. If the firm is currently producing 200 units of output per
period using input rates of L = 4 and K = 25, is this an efficient input combination? If not, what is
the efficient capital to labour ratio?
(20)

3. For many countries, taxes imposed by the governments are the sole revenue generators which can
be used for social development activities. However, economists disagree on the policy of
imposing higher taxes. Explain the reasons why economists do not advocate for higher taxes.
(20)



Group B
Attempt any SIX questions

4. Demand for a managerial economics text is given by Q = 20000 300P. The book is initially
priced at Rs.30.
a) Compute the point price elasticity of demand at Rs.30. If the objective is to increase total
revenue, should the price be increased or decreased? Why?
b) Compute the arc price elasticity for a price decrease from Rs.30 to Rs.20.
(10)

5. The market demand, supply and total cost functions for an industry in the perfectly
competitive market are:
Demand function : Qd = 20,000 10P
Supply function : Qs = 11,000 + 20P
Total cost function : TC = 90,000 + 10Q + Q
2

Is this industry in long-run equilibrium? Why or why not?
(10)

6. Explain the concept of opportunity cost. Why is it important for managers to understand
the opportunity cost well in order to successfully manage the day to day work? Provide
some examples and numerical illustrations.
(10)

7. Consumers satisfaction lies on the purchase of bundle of goods and services that he/she
envisages as his/her optimum. What is meant by consumers optimum? How can this
optimum be achieved? Explain with appropriate diagram.
(10)
8. What are consumer and producer surpluses? How are consumer and producer surpluses
affected by increase and decrease in prices?
(10)
9. How are shut down and exit different in perfectly competitive market? Explain the
conditions when a firm would like to shut down and/or exit.
(10)

10. Write short notes on: (5+5 = 10)
a) Demand curve shifters
b) Deadweight loss



All the Best!