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I Semester MBA 08MBA12

MANAGERIAL ECONOMICS
QUESTION BANK
MODULE – 1
Questions of 3 marks
1. What is Managerial Economics?
2. Define Managerial Economics.
3. “Managerial Economics is primarily an applied science.” Why?
4. Is Managerial Economics a science or an art? Explain.
5. Distinguish between micro economics and macro economics.
6. State any three important responsibilities of a managerial economist.
7. State six duties or functions of a managerial economist.
8. Why is Managerial economics considered as normative economics?

Questions of 7 marks
1. Explain the scope of Managerial Economics.
2. Briefly discuss the responsibilities of a managerial economist.
3. Discuss the roles and responsibilities of a managerial economist.
4. Distinguish between Managerial economics and Economics.
5. Explain the decision making process in managerial economics.
6. Distinguish between micro and macro economics.
7. Explain clearly the concepts of ‘Time Perspective’ and ‘Discounting’.
8. Explain the role of managerial economist in decision making.

Questions of 10 marks
1. “Managerial economics is the integration of economic theory with business
practice for the purpose of facilitating decision making and forward planning by
management.” Discuss.
2. Discuss the role and responsibilities of a managerial economist.
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3. Explain the role of managerial economics in the decision making process of a

business firm.
4. Discuss the relationship between Managerial Economics and other
subjects like Economics, Statistics, Mathematics, Accountancy and
Operations Research.

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MODULE –2
Questions of 3 marks
9. Define opportunity cost.
10. Differentiate between incremental cost and marginal cost.
11. What do you mean by time perspective?
12. What is meant by discounting principle?
13. What is equi-marginal principle?

Questions of 7 marks
9. Explain clearly the principle of ‘opportunity cost’ with examples.
10. Define opportunity cost principle. Explain its managerial significance.
11. Explain the application of equi-marginal principles to a firm.
12. What is incremental principle? What is its managerial significance?
13. Explain clearly the concepts of ‘Time Perspective’ and ‘Discounting’.

Questions of 10 marks
1. Explain the fundamental concepts used in managerial economics.

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MODULE – 3
Questions of 3 marks
1. What do you understand by demand?
2. What is autonomous demand and derived demand?
3. State the law of demand.
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4. What is meant by “Giffen Paradox”?

5. Distinguish between extension of demand and increase in demand.
6. Distinguish between point and arc elasticities with examples.
7. Explain in brief any three uses of ‘elasticity of demand’ in business
operations.
8. What are the factors influencing elasticity of demand?
9. What is advertising or promotional elasticity of demand?
10. Explain in short the concept of demand forecasting and its significance in
large scale firms in the business.

Questions of 7 marks
1. State and explain the law of demand.
2. “The demand curve slopes downwards”. Give reasons.
3. What are the exceptions to the law of demand? Explain.
4. Clarify the exceptions to the law of demand with the help of a demand curve
(exceptional demand curve).
5. Construct a demand schedule for product X for alternative prices of Re.1,
Rs.2, Rs.3, Rs.4 and Rs.5 given its demand function: Dx = 90 – 2Px.
6. Demand function is given as Dx = 20 – 2Px
Where Dx = Amount demanded of commodity X
Px = Price of X
If the given prices per unit of the commodity are: Rs. 1, 2, 3, 4 and 5
alternatively,
a. construct a demand schedule
b. draw a demand curve representing the demand schedule.
7. The demand curve for commodity X is represented by Qx = 1,60,000 – 1,000
Px. Construct the demand schedule assuming initial price to be Rs. 100 and
consequent increase by Rs. 10 up to Rs. 150.
8. Suppose the demand function for Komal butter in a town is estimated to be:
Qd = 600 – 5P where Qd is the quantity demanded of butter (in ‘000 Kgs per
week) and P stands for the price.
a. Estimate at what price demand would be zero.
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b. Construct a demand schedule at alternative prices: Rs. 25, Rs. 35, Rs.
50, Rs. 60 and Rs. 80 per Kg.
9. The price of a commodity is Rs.10. At this price, the quantity demanded is
100 units. The seller decided to reduce the price to Rs.8. At the reduced price,
the demand for the product increased to 140 units. Calculate the arc elasticity
of demand.
10. When the price of commodity X was Rs. 10 per unit, people consumed 3000
units. With a fall in price to Rs. 9, they consumed3150 units. State the formula and
measure the elasticity of demand for X.
11. The demand function for beer in a city Qd = 400 – 4P
where Qd = the quantity demanded of beer (in ‘000 bottles per week)
P = the price of beer per bottle.
a. Prepare a demand schedule assuming price Rs. 10, 12, 15, 20 and 25 per
bottle.
b. At what price would demand be zero?
c. If the producer wants to sell 3,80,000 bottles per week, what price should
it charge?
12. What are the uses of price elasticity of demand?
13. What are the different methods of demand forecasting?
14. What are the important statistical methods of demand forecasting?
15. 200 units of a commodity are demanded at a price of Rs 10. When the price
rises to Rs.15, the quantity demanded falls to120 units. Calculate the arc
elasticity (or interval elasticity) of demand.
16. With the help of diagrams, explain the difference between a movement along
a demand curve and a shift in the demand curve.
17. The price of a commodity is Rs. 20. At this price, the quantity demanded is
200 units. The seller decided to reduce the price to Rs.16. At the reduced
price, the demand for the product increased to 280 units. Calculate the arc
elasticity of demand.
18. How does point elasticity differ from arc elasticity? Give suitable examples.
19. What happens to demand when the following changes occur?
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a. The price of the commodity falls.

b. Income increases and the commodity is normal.
c. Income increases and the commodity is inferior.
d. The price of substitute good increases.
e. The price of substitute good decreases.
f. The price of complement good increases.
g. The price of complement good decreases.

Questions of 10 marks
1. Explain Law of Demand with diagrammatic representation and illustrations.
2. Explain the reasons why the demand curve is supposed to be downward
sloping.
3. A departmental store conducted a study of the demand for men’s ties. It found
that the average daily demand D, in terms of price P is given by the equation
D = 80 – 5P.
i. How many ties per day can the store expect to sell at a price of Rs 10 per
tie?
ii. If the store wants to sell 50 ties per day, what price should it charge?
iii. What is the highest price anyone would be willing to pay?
4. Explain the demand forecasting methods.
5. Define Income elasticity of demand and distinguish its various types. How
does income elasticity differ from Cross elasticity?
6. At Rs 100, 1000 units of a commodity are demanded, at new price Rs 120/-,
800 units are demanded.
i. Find out point elasticity at P1 and P2 .
ii. Identify the type of elasticity of demand.
iii. Explain briefly the practical applications of elasticity of demand.
7. Discuss the methods of measurement of price elasticity of demand.
8. At an initial advertisement expenditure of Rs. 2 lakhs, the demand for Bajaj
bike was 60,000 units in a month. However when advertisement expenses
were increased to Rs. 3 lakhs, the sales volume raised to 80,000 units.
Calculate the advertisement elasticity of demand and give comments.
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9. What is cross elasticity of demand? Would you expect the cross elasticity of
demand to be positive , negative or zero for each of the following pairs of
goods?
i. Hawkins and Prestige pressure cookers.
ii. Desks and Chairs
iii. Kwality Ice cream and Men’s socks.
What general rule can you give to base your answers?
10. Investigating the demand for textiles in a country, a researcher observed that
the demand tends to rise by 1.5 percent with one percent decrease in the prices
of textiles; with the rise of one percent in per capita GDP, the demand for
textiles rises by 0.45 percent and when food prices increase by one percent the
demand for textiles contracts by 0.93 percent.
a. Identify the types of demand elasticity in this case and define them.
b. Which type of elasticity the textile mills should consider significant for the
business development?
c. How much rise in sales is expected by offering 20 percent discount by
textile mills?

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MODULE – 4

Questions of 3 marks
1. Explain the concept of ‘firm’ and ‘industry’ with examples.

Questions of 7 marks
1. Explain why profit maximization is not always the aim of a firm.
2. Explain clearly the behavioural theories of a business firm.
3. Explain the alternative objectives of a business firm.

Questions of 10 marks
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1. Explain clearly the Baumol’s model and Marris’s theory regarding objectives of a
firm.
2. Explain the Baumol’s sales revenue maximization model of a firm.
3. Analyze Baumol’s theory of sales revenue maximization.
4. Explain the Baumol’s model of sales revenue maximization.
5. Explain the behavioural theories of a firm.
6. State and discuss precisely the Baumol’s hypothesis of sales revenue
maximization and Marris’s hypothesis of maximization of firm’s growth rate.

MODULE – 5
Questions of 3 marks
1. What are isoquants?
2. Define production function
3. Narrate or describe Law of Diminishing Returns.
4. Define an isoquant and explain its properties.
5. What is meant by ‘Returns to Scale’?
6. Define returns to scale.

Questions of 7 marks
1. Explain the managerial significance of production function.
2. Briefly explain the different properties of an isoquant curve.
3. Define isoquant curve. Explain its properties.

Questions of 10 marks
1. Briefly explain the laws of returns to scale.
2. Briefly explain with sketches the properties of isoquant curves.
3. Briefly explain with illustration the law of variable proportions.
4. Explain the law of variable proportions.
5. Explain the law of variable proportions with the help of an example and graphs
stating increasing, diminishing and negative returns.
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6. Explain the law of variable proportions in detail.

7. Explain diagrammatically the properties of isoquants.

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MODULE – 6
Questions of 3 marks
1. What is law of supply?
2. Distinguish between fixed costs and variable costs.
3. How is economic cost different from accounting cost?
4. How do you distinguish marginal cost from average cost?
5. Distinguish between explicit and implicit costs.
6. Define envelope curve.
7. Distinguish between opportunity cost and incremental cost.

Questions of 7 marks
1. Define economies of scale in the broad sense. Explain five forms of internal
economies.
2. Discuss the various economies of scale.
3. State and explain the Law of Supply.
4. Explain the factors influencing the economies and diseconomies of scale.
5. Explain economies and diseconomies of scale.
6. Critically explain the principle of opportunity cost with suitable examples.
7. Explain why short run average cost curve is U-shaped.
8. Why is short run average cost curve is U-shaped?

Questions of 10 marks
1. Narrate Law of Supply and explain it with the help of an illustration and / or
diagram. State any five assumptions underlying this law.
2. State and explain the law of supply. Discuss the factors influencing the changes in
supply.
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3. Classify average fixed costs (AFC), average variable costs (AVC) and average
total costs (ATC) with the help of some hypothetical example and relevant cost
curves.
4. Discuss the short run cost-output relationship.
5. Explain the short run cost-output relationship with statistical examples.
6. Why is the long run average cost curve known as planning curve?
7. Illustrate and explain short run cost-output relationship with examples.
8. State and explain the law of supply. Discuss the factors influencing the changes in
supply.
9. Why the average cost curve is U-shaped in the long run? Explain.
10. Illustrate and explain long run cost output relationship with examples and
diagrams.
11. Distinguish between external and internal economies of scale. Explain.

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MODULE – 7
Questions of 3 marks
1. When price discrimination is possible?
2. Explain the features of monopolistic competition.
3. Define price discrimination. List out any four forms of price discrimination.
4. Define oligopoly.
5. What do you mean by loss leader pricing?
6. What do you mean by monopolistic competition?
7. What is monopoly power?
8. What is mark-up pricing?
9. What are the abuses of monopoly?
10. Analyze the features of monopolistic competition.
11. What is oligopoly? Mention any four features of it.
12. What is full cost pricing? Explain its uses and limitations.

Questions of 7 marks
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1. Discuss the abuses of monopoly.

2. Briefly analyze the different methods of pricing products.
3. What are the main characteristics of perfect competition?
4. Explain kinked demand curve analysis with the help of a diagram.
5. Distinguish between skimming pricing and penetration pricing with suitable
examples.
6. What is pure monopoly? Explain price and output determination under monopoly
in the short run.
7. Explain forms of price discrimination.
8. Discuss the pricing strategies for a new product.
9. What are the characteristics of oligopoly?
10. Explain the role of price leadership in oligopolistic markets.
11. Clarify the concepts of “perfect competition” and “monopolistic competition”.
12. Explain with the help of a diagram, the kinked demand curve.

Questions of 10 marks
1. How is equilibrium price and output determined under monopolistic competition?
2. Explain the meaning of price leadership. What are the conditions necessary for
effective price leadership?
3. How is price-output determined in the short run in a monopoly market?
4. How is price of a commodity determined in the short run under perfect
competition?
5. What do you mean by peak loading pricing? When can peak load pricing be
applied fruitfully?
6. Explain skimming pricing and penetration pricing.
7. What do you mean by pure monopoly? What are the causes of monopoly?
8. Explain price and output determination under monopoly in the long run.
9. When is price discrimination possible, profitable and desirable?
10. Write a critical note on different pricing approaches.
11. Clarify the pricing strategies of “Price skimming” and “Penetration pricing”.
What is the major difference between the two?
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MODULE – 8
Questions of 3 marks
1. What is break-even analysis?
2. What is break-even point?

Questions of 7 marks
1. What are the uses or applications of break-even analysis?
2. How do you define Break-Even Analysis (BEA)? Construct a break-even chart.
3. Explain the concept of break-even chart and bring out its significance.

Questions of 10 marks
1. Define BEP. Explain the assumptions and limitations of break-even analysis.
Also explain the safety margin.
2. Merry Manufacturers Ltd., has supplied you the following information in
respect of one of its products.
Total fixed costs Rs 18000
Total variable costs Rs 30000
Total sales Rs 60000
Units sold 20000
Find out:
i. Contribution per unit
ii. Break-even point
iii. Profit
iv. Margin of safety and
v. Volume of sales to earn a profit of Rs 24000.
3. The following data are given:
Fixed cost = Rs 30,000
Variable cost = Rs 2 per unit
Selling price = Rs 10 per unit
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Sales = Rs 1,00,000
i. Calculate profit, if likely sales are Rs 1,40,000.
ii. Calculate sales, if a target profit of Rs 60,000 has been budgeted.
iii. What would be the selling price per unit, if the break-even point has to
4.be brought down to 5,000 units?
4. Highlight the practical applications of break-even analysis.

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