Managerial Economics

PART A (Descriptive Type) = 40 PART B (Case Study) = 5 PART C (Multiple Choice) = 160
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PART A Descriptive Type Question

Question 1: "Managerial Economics is an integration of economic theory with business practices for the purpose of facilitating decision making and forward planning by management". Discuss. Question 2: How does economic theory contribute to managerial decisions? Question 3 Distinguish between the following: (i) Industry demand and Firm (Company) demand,: (ii) Short-run demand and Long run demand, and: (iii) Durable goods' demand and Non-durable goods demand. Question 4: Economics can be defined as the study of allocation of scarce resources among competing ends. Discuss. Question 5: What are indifference curves? Explain the consumers' equilibrium under the assumptions of ordinal approach. Question 6: State the relationship between elasticity of demand, total revenue, average revenue and marginal revenue. How does demand elasticity influence pricing decisions of a firm? Question 7: What is importance of Demand Forecasting? Explain any two ways in which demand is generally forecasted. Question 8: What are Isoquants and Isocosts? Explain graphically the criteria for lease cost combination of inputs. Question 9: What are the essential features of monopoly? Can a monopolist incur losses in the short run? Why does a monopolist produce sub-optimal output in the long run? Is monopoly socially desirable in India? Question 10: Explain the concepts of returns to scale and returns to a factor. Question 11: Explain the relationship between MC, AC, AVC, AFC and TC with the help of diagrams. What is the equilibrium condition in the long run in perfect competition? Question 12: Explain the following a.) Fixed and variable cost |b.) Indifference curves |c.) Law of diminishing marginal returns | d.) Factors influencing demand of a durable commodity Question 13: Explain the law of demand. Briefly discuss the exception to the law of demand. Question 14: Expain the various components of demand function. Question 15(i): Given the demand function Qd = 12 p |a) Find the demand and revenue schedules. |b) Find the MR when P - 10, 6 and 2. Question 15(ii): Distinguish between linear and non linear demands functions. Question 16: Explain the trend projection method of demand forecasting? Question 17: Explain the concepts of return to scale and returns to a factor. Question 18: Explain the following:- a) Opportunity Costs | b) Fixed Costs |c)Social and Private Costs |d) Sunk Costs Question 19: Explain the relationship among the average total cost marginal cost and average variable costs. Question 20: What are the problems faced in determining the demand for a durable good? Illustrate with example of demand for households refrigerator or television set. Question 21: Analyse the method by which a firm can allocate the given advertising budget between different media of advertisement.

Question 22: What kind of relationship would you postulate between short-run and long-run average cost curves when these are not U-shaped as suggested by the modern theories? Question 23: How do demand forecasting methods for new products vary from those for established products? Question 24: What are the different methods of measuring national income? Which methods have been followed in India? Question 25: What do you understand by the investment multiplier? In what way does it defend the policy of public works on the part of the state during business depression? Question 26: Discuss the various phases of business cycle: (i) Are cyclical fluctuations necessary for economic growth? (ii) Suggest appropriate fiscal and monetary policies for depression. Question 27: Why does the demand curve have negative slope? What are the exceptions to the law of demand? Question 28: What is elasticity of supply? Discuss the determinants of elasticity of supply. Question 29: Make a comparative estimate between the returns to scale and economies of scale. Question 30: What are the features of perfect competition? Explain the long run equilibrium of a firm under perfect competition. Question 31: What are the causes of business cycles? What measures should be taken to control recession in an economy? Question 32: Explain the usefulness of the concept of national income in analyzing the aggregate behaviour of the economy. Question 33: What factors give rise to monopoly? Why does a monopolist earn supernormal profits in the long run? Question 34: Examine the concept and relationship of Total, Average and marginal costs with the help of suitable diagram. Question 35: Differentiate and elaborate the concepts of returns to scale and law of variable proportions. Question 36: Why is demand forecasting essential? What are the possible consequences if a large scale firm places its product in the market without having estimated the demand for its product? Question 37: Discuss the various steps involved in a managerial decision making process. Explain, in detail, any two group decision making techniques. Question 38: Why a firm is price taker and not a price maker under perfect market conditions? Question 39: Profit maximization is theoretically the most sound but practically unattainable objective of business firms. In the light of this statement critically appraise the Baumol's sales revenue maximization theory as an alternative objective of the firm. Question 40: Distinguish between skimming price and penetration price policy. Which of these policies is relevant in pricing a new product under different competitive conditions in the market?

PART B Case Study 1

DEMAND FORECASTING FOR M/s BENGAL CABLE COMPANY The market research department of M/s. Bangal Cable Company, Kolkota 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 and building activity. Cables are used for different purpose such as power transmission and industrial and house wiring. Bengal Cable Company was exclusively engaged in the manufacturing of cable 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. As cables are a must for industry and building the price factor was not considered as significant variable in determining the demand for cables. After all this products has no substitute. The market research department of M/s Bengal Cable Company, Kolkata, 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 had shown a strong positive correlation between all India cable sales and the peak demand for the corresponding year. The estimating equation was as follows:Yt. = 1173 + 28.5 Xt. Where Yt. = annual cable sales (in thousand coils) for all India in year t Xt. = peak demand in million K.W. in year t r2 = 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 were no marked seasonal fluctuation, it was considered proper to assume uniform monthly cable sales throughout the year. It was estimated that Bengal Cables market share in 2004 will be about 20 per cent. Question 1. Find out the all India cable demand for the year 2004 and monthly estimated sales of Bengal Cable Company. Question 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? Question 3. Suppose the market share of the company during the previous two years was 10 and 15 percent respectively, was the company justified in assuming the market share as 20 percent?

Case Study 2
DEMAND FORECATING FOR CABLES The market research department of M/s. Bengal Cable Company, Cacutta 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 deveopment 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 expained 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 al this product has no substitute. The market research department of M/s Bengal Cable Company, Cacutta, deveoped a model relating al 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 al India cable saes 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 al India in year t Xt = peak demand in milion K.W. in year t r2= 0.94 The Central Electricity Authority of the Government of India has estimated the peak demand for the year 2004 as 98.5 milion K.W., taking into account likely industrial and building growth and the avaiability of power on an al India basis. As there are no marked seasonal fluctuation, it is considered proper to assume uniform monthly cable saes throughout the year. It is estimated that Bengal Cables market share in 2004 will be about 20 percent. Question 1. Find out the al India cable demand for the year 2004 and monthly estimated saes of Bengal cables Company. Question 2. The price factor was not considered important in forecasting al India demand for cables. Will the same be true in estimating demand for the company's cables? Question 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?

Case Study 3
Electron Control, Inc., sells voltage regulators to other manufacturers, who then customize and distribute the products to quality assurance labs for their sensitive test equipment. The yearly volume of output is 15,000 units. The selling price and cost per unit are shown below: Selling price $200 Costs: Direct material $35 Direct labor 50 Variable overhead 25 Variable selling expenses 25 Fixed selling expenses 15 150 Unit profit before tax $ 50 Management is evaluating the alternative of performing the necessary customizing to allow Electron Control to sell its output directly to Q/A labs for $275 per unit. Although no added investment is required in productive facilities, additional processing costs are estimated as: Direct labor $25 per unit Variable overhead $15 per unit Variable selling expenses $10 per unit Fixed selling expenses $100,000 per year Question A. Calculate the incremental profit Electron Control would earn by customizing its instruments and marketing directly to end users.

Case Study 4

Mc Donalds holds nearly 30 percent share of $65 billion US restaurant business and 46 percent of its $2.6 billion burger business. It serves more than 22 million customers per day and with sales of nearly $15 billion it dwarfs its competitors. After nearly three decades of double digit gains, however, domestic sales at Mc Donalds have been growing slowly since 1986 as a result of higher prices, changing tastes, slow growth of the domestic economy, demographic changes, and increased competition from other fast food chains and other forms of delivering fast foods. Price increase at Mc Donalds exceeded inflation in each year since 1986 and in 0 of the last 17 years. The average check at McDonalds is now $4 a far cry from the 15cent hamburger on which Mc Donalds got rich and sent customers streaming to lower pricing customers. Concern over cholestrol and calories, as well as slowing down of growth of the economy and in personal incomes have also reduced growth. In addition the proportion of 15 to 29 year olds (the primary fast food consumers) in the total population has shrunk from 27.5 to 22.5 percent during the past decade. Increased competition from other fast food chains, and other fast food options (pizza, chicken tacos and so on) frozen fast foods, mobile units and the vending machines have also slowed the growth of Big Macs. Mc Donalds did not sit idle and tried to meet its challenges head on by introducing a value menu in 1990 with small hamburgers selling for as little as 59 cents(down from 89 cents) and a combination of burger, French fries, and soft drinks for as much half as off. IN response to the increased public concern about cholestrol and calories, Mc Donalds began publicizing the nutritional content of its menu offerings, substituted vegetable oils for beef tallow in frying French fries, replaced ice cream with low fat yoghurt, introduced bran muffins and cereals in breakfast menu, and even (unsuccessfully) introduced Mac Lean Deluxe a new reduced fat, quarter pound hamburger on which Mc Donalds spent from $50 to $70 to develop and promote. Furthermore, in response to increased competition from frozen foods, mobile units, and vending machines, an increasing number of Mc Donalds franchises have drive throughs from which they now generate almost half their business. Mc Donalds is also expanding very rapidly abroad. When it faces much less competition and where there is much more room for growth. Questions 1. How are sales of burgers related to determinants of demand? 2. What is value Menu ? 3. Do you think a decrease in price by 30 cents was a step in right direction?

Case Study 5
Michael Wolfson, a computer programmer had a decent job with the financial powerhouse Bear, Steams & Co. Now, he refurbishes computers at the basement in his house and sells it through e-bay. He plans to join as a school teacher. Michael lost his job in 2003. He was told that his job is being outsourced to India. Paul Schwartz, a mainframe programmer, who was earning $ 80,000 a year was told that his services were no longer required. He suspects that his job has been outsourced to India. There is growing dissent among the Americans against the increasing practice of outsourcing. It has become an electoral issue in the coming presidential elections in the US. The Democratic candidate, John Kerry has made it an emotive issue, despite

economists trying to portray the positive aspects of outsourcing. There are numerous reasons for the growing apathy towards outsourcing. The prevailing economic situation and the increasing joblessness in the US have added fuel to the fire. However, many analysts feel that joblessness in the US is cyclical in nature resulting from the recession of 2001 and hence, a recovery will create job opportunities. Moreover, according to the U.S.-India Business Council, the increasing unemployment is also due to corporate restructuring and just a quarter of the job loss is due to outsourcing. Since, the beginning of 2001, the real job loss in US is estimated to be 2.3 million. In comparison, the actual job loss due to outsourcing is estimated to be only 200,000. Thus, it can be said that there are various other reasons for joblessness in the US. The outcry against outsourcing seems to be driven more by politics rather than economics. Outsourcing forms a small proportion of the jobs that are regularly churned in the US economy. On an average, 24 million jobs are churned in the US every month. In the process, resources are allocated, for more productive purposes. To come out of the recession and raise the standards of living, higher productivity seems to be the only solution. The debate on outsourcing gathered momentum only in the recent past. A study by Forrester, a research group, in the year 2002, brought the issue into limelight. The report claims that by 2015, 3.3 million white-collar jobs in the US would be transferred to countries like India. The Economics of Outsourcing But is outsourcing so bad for the US economy? Gregory Mankiw, professor of economics at the Harvard University and head of President Bush's Council of Economic Advisers, recently told presspersons that outsourcing of jobs is in better interest of US. According to him, outsourcing lowers the cost for consumers, making the corporations more efficient. There were a series of articles in The Economist, highlighting the advantages of outsourcing. There are many influential groups in the US who are perturbed by the recent outcry against outsourcing. Says Charles E Morrison, President, East West Center, a US based think tank, "Off-shoring is not an economic problem, but an economic opportunity". Many analysts in the US feel that anti off-shoring bills in the US would prove to be ineffective. Similar views were echoed by Michael T Clark of US-India business council. He says that, "Jobs lost to off-shoring were less than a quarter of all jobs lost in the US in 2002. The rest were lost due to corporate restructuring. The current debate in the US on off-shoring is informed by lack of facts". In an article, "Why Your Job Isn't Moving to Bangalore" in the New York Times, Jagdish Bhagwati, a senior fellow at the Council on Foreign Relations and professor at Columbia University writes that the panic and furor over outsourcing is completely unwarranted. He further says that no jobs are being taken away from America. He says that the affect of changes in technology is being felt in the labor intensive industries. According to him, the loss of jobs in the US is due to technological changes. Professor Bhagwati is also critical about politicizing the whole issue. He says that outsourcing will strengthen the competitiveness of the US companies. Firms ignoring the cheaper supplies would lose out. Professor Bhagwati further says that outsourcing service jobs is nothing different from importing of labor-intensive textiles and other goods. According to him, all empirical studies in the US over the last two decades

suggest that wage stagnation in the manufacturing industry is more due to automation of the processes, not the cheaper imports. The same is applicable to service industry as well. Jane Linder of Accenture's Institute for Strategic Change says that companies outsourcing the traditional back-office work have more control and discipline over their operations. Moreover, employees of the company can concentrate on framing strategies. Further, outsourcing also results in greater efficiency and lowering costs. This allows companies to offer better services to customers. A study done by McKinsey Global Institute reveals that for every dollar of work outsourced by the US, it gets back $1.14 as income, and the countries to which the work is being outsourced gains 35 cents. This shows that outsourcing is a win-win situation for both the countries. Benefits for US Savings to US investors or customers Imports of US goods and services by providers in India Transfer of profits by US based providers in India back to US Benefits for India 0.58 0.05 0.04 Labor Profits retained in India Suppliers 0.1 0.1 0.09

Net direct benefit retained in US

0.67

Central government taxes

0.03

Value for US labor reemployed

0.450.47

State government taxes

0.01

Potential net benefit for US Source: Mckinsey Global Institute

1.121.14

Net benefit to India

0.33

There is a definite cost advantage in off-shoring work to India. These advantages are a result of lower wages in the developing countries along with the development of telecommunications in these countries. A report published by HSBC, which has offshored more than 4,000 jobs to India, says that the telephone costs from India to America and Britain has decreased by almost 80%, since January 2001. The wage difference between these countries is also a factor that forces the companies to outsource their business processes to India. A study done by NASSCOM, says that the average salary of an IT professional in UK is $96,000, in US it is $75,000, whereas in India it is just $26,000. The wage difference between the low end call center jobs of both the countries is also very wide. An average call center employee in UK earns $20,000 on the average. Whereas, a call center professional in India barely manages to earn one tenth of the earnings of their British counterparts. Offshoring allows companies to work round the clock. It gives ample time to the companies to think about their IT problems. Recently, American Express paid $5,000 to

a group of software programmers in India, to develop a package for them. The same would have cost them several million dollars in US. The benefits of outsourcing go much beyond the cost advantage. An article in Mckinsey quarterly suggests that the companies need to look beyond cost savings. The article says that "Companies are merely replicating what they do at home, where labor is expensive and capital is relatively cheap, in countries in which the reverse is true." Alan Greenspan, US Federal Reserve Chairman, is a staunch supporter of outsourcing. He is of the opinion that any move to curb outsourcing of work to countries like India and China, might give just a temporary relief. Reacting to the proposed legislations in the US banning outsourcing, Greenspan said, "A new round of protectionist steps is being proposed against outsourcing. These alleged cures will make matters worse". Greenspan feels that any effort to protect US jobs through legislation would backfire. Not all companies have taken full advantage of outsourcing. According to Harris Miller, president of the Information Technology Association of America (ITAA), a lobby group, so far only 3-4 % of all American companies outsource their processes. The remaining still rests with American firms. A report published by Forrester, in December 2003, says that 60% of the Fortune 1000 companies have a negligible or near nil presence in offshoring. Report also suggests that 40% of the work of these companies could be outsourced. Thus, the potential for growth in outsourcing is still immense. Advancement in the technology can give a further push to the off-shoring activity. The inflexible architecture of the current technologies is acting as a hindrance in off-shoring, says Simon Heap of Bain & Co, a consultancy firm. The advancement in software and hardware would enable the companies to off-shore even small activities. Firms would be able to off-shore the activities of the entire department, say billing of customers. However, not everyone seems to agree with the supporters of outsourcing. Stephen Roach, the chief economist at Morgan Stanley, says that it is only the wage difference that is encouraging companies to outsource work to India or any other developing country. He further says that joblessness is taking away the charm of recovery in the US. Many analysts also feel that companies should take some concrete steps to minimize the affects of outsourcing. Companies should make the process of job transfers to offshore destinations more smooth. British Telecom exhibited a process of outsourcing that can be used as a model by other companies. In 2003, when BT announced that it is planning to open two call centers in India, with a capacity of 2200 people, it was criticized from all corners. It was said that BT was not acting in a socially responsible manner. Realizing the gravity of the situation, BT approached Sustainability, an international consultancy, specializing in business strategy and sustainable development. The consultancy firm was asked to find whether or not outsourcing and corporate social responsibility (CSR) co-exist. Sustainability noted that the immediate impact of outsourcing would be job loss for the employees, and the resulting affect on the society. The consultancy firm was of the opinion that before outsourcing, companies should address the negative impact of outsourcing. In order to check the negative impact of off-shoring, firms should consult with employees, trade unions, communities and other key stakeholders. Employees should be involved in the process of any such decision making. Sustainability also

suggested that firms should be transparent and make the employees know the services that are being outsourced. Firms should also make an attempt to redeploy the employees in some other departments. This would minimize layoffs. An attempt should be made to retrain the redundant workers. A part of the savings from off-shoring should be invested for this purpose. As per the suggestion made by McKinsey Global Institute, 4-5% of the resulting savings from off-shoring should be used for insurance policy for employees to cover the lost wages. US was one of the prime supporters of free trade. US was least bothered about the concerns of many other developing countries when they raised their voices against job losses as a result of the cheap exports. But, this aggressiveness seems to have mellowed down in recent days. It always propagated that inefficient industries should be closed. One of the primary tasks of the U.S. Trade Representative's office was to keep a check on the world markets. It assesses the markets which are opening up and which are getting closed as a result of high tariffs and other quantitative restrictions. Now, with the growing efficiency of developing countries in the service sectors, many jobs in these sectors are being transferred to developing countries (of which a major chunk is coming to India). US is worried about the increasing joblessness but that seems paradoxical. It hails globalization but when it comes to the developing countries trying to reap the benefits of globalization, it raises all sorts of issues. Recently the US government has tightened the visa norms. The number of H-1B visas issued to Indian software programmers fell to 65,000 from 1,95,000 in 2003. Analysts feel that this would increase outsourcing of jobs further, particularly to India. According to Craig Barrett, the chief executive of Intel, granting of fewer visas would force the companies to shift their jobs to countries like India, where there is no dearth of qualified engineers. Despite no ban from the federal authorities on outsourcing, many States have initiated the process of putting restrictions on outsourcing government work to foreign countries. The lawmakers in the state of New Jersey have proposed a bill that stops firms to outsource any government related work to a foreign country. Succumbing to the public pressure, the government was forced to bring back a helpline for welfare recipients that was being outsourced to India. Similarly, the state of Indiana withdrew a $ 15 million contract from an American subsidiary of an Indian IT firm. Commenting on the move, the Indiana governor said that contract was not in tune with Indiana's vision of providing better and more job opportunities to local companies and workers. However, analysts feel that these decisions have been influenced by political pressure in the backdrop of coming presidential elections in the US. The Indian Response The Indian BPO industry is not taking the outcry against outsourcing in the US seriously. Indian BPO firms are no longer just call centers. Their activities now cover marketing and knowledge based services. These companies are now aspiring to become strategic partners for US companies. There is a sudden spurt in the number of venture capitalists willing to invest in different areas. Though, some software companies can't hide their concern over the legislations banning government related off-shoring in the long-run but, for now they are clear that, these legislature will have negligible effect on the current contracts with the private companies. Reacting to the whole issue,

Narayana Murthy, Chairman and Chief Mentor of Infosys said that there is no issue to worry about. He termed the outcry as normal. He suggested that rather than getting worried and agitated, Indians should put forward their point of view and explain the advantages of off-shoring. He said that the present uncertain economic situation is responsible for the concern over the job losses in the US. Many analysts feel that the opposition to outsourcing may not end with the US presidential elections. With many of the American States, coming out with legislations banning government contracts to other countries, the issue of off-shoring is going to be alive. Conditions for off-shoring may become favorable with the improvement in the performance of the US economy. Question for discussion: Que. Give your opinion on outsourcing and its impact on the prospects of growth of the economy of home Nation and host nation. Guidelines for the answer: Discuss the issue in the perspective of opportunity and threats faced by developing and developed nations.

PART C Multiple Choice Question Set 1

1. In order to maximize profit, the firm follows:(a). Incremental concept (b). Equi-marginal principal (c). Discounting principe (d). None of these 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. 3. Which of the following is a fixed cost? (a). cost of machinery (b). wages (c). cost of plant (d). 'a' an c 4. In the ong run there are no (a). fixes costs (b). variable costs (c). normal profits (d). economies fiscale

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. 6 Fixed costs are those costs (a). that are subject to diminishing marginal productivity (b). that are embodied in the caculation of marginal cost (c). that are independent of the rate or output (d). that are implicit to a competitive firm. 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 ong run (b). the firm is realizing an economic profit (c). the firm is realizing a oss (d). this is an increasing cost industry 8. The competitive seers 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. 9 The monopolistic firms demand curve (a). is always inelastic (b). coincides with its marginal revenue curve (c). is perfectly elastic (d). is less eastic than a purely competitive firms demand curve. 10. If an imperfectly competitive firm is seling its 100th unit of output for $35, its marginal revenue (a). will be greater than $35 (b). will be ess than $35 (c). will aso be $35 (d). may be either greater or less than $35 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 12. A pure monopolists demand curve (a). lies beow 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 ineastic 13. For an imperfectly competitive firm, (a). the marginal revenue curve will lie beow the demand curve because any reduction in price applies only to the extra units sold (b). the marginal revenue curve will lie beow the demand curve because any reduction in price applies to al units sold (c). the marginal revenue curve will lie above the demand curve because any reduction in price applies to al units sold (d). Total revenue is a straight, upsloping line because a firms sales are independent of product price. 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 marginal revenue curves will coincide (d). the marginal revenue curve will lie above the demand curve. 15. When setting its price, an oligopoly (a). does not have to worry about how its rivas will react to its price (b). knows how its rivas will react to its price (c). is uncertain about its rivas 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 17. Monopolistic competition differs from perfect competition because (a). there are many seers (b). there is free-entry of new firms (c). each firm ses a differentiated product (d). al of the above 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

19. A purely competitive firm will be willing to produce at a loss in the short run provided. (a). the oss is no greater than its variable costs (b). the oss is no greater than its marginal costs (c). the oss is no greater than its fixed costs (d). price exceeds marginal costs 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 eastic 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. 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. 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 equas average cost. 23. Price discrimination refers to (a). the difference between the prices a purely competitive seer and a purely monopolistic seer would charge (b). the seling 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). seling a given product for different prices at two different points in time. 24. Which of the following is not a precondition for price discrimination? (a). the seler must possess some degree of monopoly power (b). the seler must be able to segment the market; that is, the seer 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. 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.

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 eastic (c). will never produce in the output range where demand is ineastic (d). will never produce in the output range where marginal revenue is positive. 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. 28. The monopolisticaly competitive seers demand curve will tend to become more elastic, the (a). smaer 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 29. The monopolisticaly competitive seer maximizes profits by producing at the point where (a). marginal revenue equas average cost (b). price equas marginal revenue (c). marginal revenue equas marginal cost (d). average costs are at a minimum 30. In the short run, a monopolisticaly 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 equas average cost. 31. The arger the number of firms and the smaer the degree of product differentiation, the (a). More elastic is the monopolisticaly competitive firm's demand curve. (b). Less eastic is the monopolisticaly competitive firm's demand curve. (c). Larger will be the monopolisticaly competitive firm's fixed costs. (d). Greater the divergence between the demand and the marginal revenue curves of the monopolisticaly competitive firm. 32. If the number of firms in a monopolisticaly 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 ong run would be enhanced. 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 arge number of firms and ow entry barriers. (d). a few dominant firms and ow entry barriers. 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. 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 36. Which of the following is a unique feature of oligopoly? (a). non price competition (b). product differentiation (c). advertising expenditures (d). mutual interdependence 37. "Mutual interdependence" means that each firm (a). produces a product similar but not identical to the products of its rivas (b). produces a product identical to the products produced by its rivas (c). must consider the reactions of its rivas when it determines its price policy (d). faces a perfectly eastic demand for its product 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 39 In defining costs (a). economists take implicit opportunity costs into account, but accountants 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. 40. A firms costs are reated in the following way (a). AC cuts average variable cost (AVC) at the minimum point of AVC (b). AC cuts marginal cost MC at the minimum point of MC (c). MCcuts AC at the minimum point of AC (d). None of the above

Multiple Choice Question Set 2

1. Econometrics is a. A modern name for economics b. A specialized branch of economics which applies the tools of statistics to the economic problems c. A branch of economics which combines macroeconomic principles with welfare economics d. A branch of economics which combines microeconomic principles with international trade e. A specialized branch of economics which describes neo-classical microeconomics 2. Which of the following comes under the broad definition for factors of production? a. Technology b. Obsolete machinery c. Innovations d. Capital e. Patent rights 3. Which of the following statements is true? a. When the supply increases, both the price and the quantity will increase. b. When the supply increases, the supply curve shifts towards the left c. A shift in the supply curve towards the right results in a fall in the price d. A decrease in the quantity supplied results in shifting of the supply curve towards the left. e. An increase in the quantity supplied leads to a fall in the price resulting in the shifting of the supply curve towards the left. 4. Which of the following statement(s) is/are false? a. If the demand falls, the price will fall. b. As the price rises the quantity demanded will fall. c. If demand rises, the demand schedule shifts to the left. d. Both (a) and (b) above. e. Both (a) and (c) above. 5. Which of the following statements is false? a. An increase in tax will affect the customers more than the producers if the supply schedule is inelastic. b. An increase in tax will affect the customers more than the producers if the demand schedule is inelastic.

c. d. e.

An increase in tax will affect the customers less than the producers if the supply schedule is inelastic. An increase in tax will affect the customers less than the producers if the demand schedule is inelastic. Both (a) and (d) above.

6. Which of the following statements is true? a. Elasticity of demand is constant throughout the demand curve. b. Elasticity of demand increases as one goes down the demand curve. c. Elasticity of demand decreases as one goes down the demand curve. d. The slope of the demand curve equals its elasticity. e. The price and total revenue move in the same direction when demand is elastic. 7. For complementary goods, the cross elasticity of demand will be a. Zero. b. Infinity. c. Positive, but less than infinity. d. Negative. e. None of the above. 8. When the income elasticity of demand for a good is negative, the good is a. Normal good. b. Luxury good. c. Inferior good. d. Giffen good. e. Necessity. 9. If both income and substitution-effects are strong, this region of the demand curve must be a. Relatively price elastic. b. Relatively price inelastic. c. Unit-elastic. d. Perfectly inelastic. e. Perfectly elastic. 10. If a good has close substitutes, a. Its demand curve will be relatively elastic. b. Its demand curve will be relatively inelastic. c. Its demand curve could be unit-elastic. d. Either (a) or (c). e. Either (b) or (c). 11. The demand for most products varies directly with the change in consumer income. Such products are known as a. Normal goods. b. Prestigious goods. c. Complementary goods. d. Inferior goods. e. Substitute goods.

12. Which of the following statements is true with regard to price elasticity of demand?

a. b. c. d. e.

Elasticity remains constant throughout the demand curve. Elasticity increases with increase in quantity demanded. Elasticity increases as the price decreases. Elasticity is equal to the slope of the demand curve. Higher the elasticity, more responsive the demand is for a given change in price.

13. Which of the following goods can be considered substitutes? a. Pen and Paper. b. Car and Petrol. c. Bread and Butter. d. Tea and Coffee. e. Keyboard and Monitor. 14. Which of the following statements concerning indifference curves is true? a. An indifference curve is the locus of points describing proportional price levels of the two goods. b. Indifference curves pre-suppose the measurement of total utility and marginal utility. c. An indifference curve is the locus of points representing various combinations of two goods about which the consumer is indifferent. d. Indifference curve pre-suppose the validity of the law of diminishing returns e. None of the above 15. If a change in all inputs leads to a proportional change in the output, it is a case of a. Increasing returns to scale b. Constant returns to scale c. Diminishing returns to scale d. Variable returns to scale e. Inefficient returns to scale 16. Isoquants are a. Equal cost lines b. Equal product lines c. Equal revenue lines d. Equal total utility lines e. Equal marginal utility lines 17. When average product is highest a. Total product is maximum b. Marginal product is maximum c. Marginal product is zero d. Marginal product is negative e. Marginal product is equal to average product 18. If marginal product is negative, it means that the a. Total product is at maximum b. Average product is at maximum c. Average product is falling d. Total product is increasing e. Average product is negative 19. Which of the following curves is called envelope curve?

a. b. c. d. e.

Long run total cost curve Long run average total cost curve Long run marginal cost curve Long run average variable cost curve Long run average fixed cost curve

20. Which of the following costs remain constant as the output increases? a. Marginal cost b. Average variable cost c. Average fixed cost d. Total variable cost e. None of the above 21. In perfect competition, a firm maximizing its profits will set its output at that level where a. Average variable cost = price b. Marginal cost = price c. Fixed cost = price d. Average fixed cost = price e. Total cost = price 22. Which of the following curves resembles supply curve under perfect competition in the short run? a. Average cost curve above break even point b. Marginal cost curve above shut down point c. Marginal utility curve d. Average utility curve e. Average variable cost curve 23. Which of the following is not a feature of perfect competition? a. Large number of seller and buyers b. No one is large enough to influence the market price c. Homogeneous products d. A horizontal demand curve e. Low price 24. In the long run, a perfectly competitive firm earns only normal profits because of a. Product homogeneity b. Large number of seller and buyer in the industry c. Free entry and exit of industry d. Both (a) and (b) above e. Both (b) and (c) above 25. The horizontal demand curve for a firm is one of the characteristic features of a. Oligopoly b. Monopoly c. Monopolistic competition d. Perfect competition e. Duopoly 26. A perfectly competitive firm can increase its sales by a. Reducing the price

b. c. d. e.

Increasing the price Increasing the production Increasing the expenditure of advertisement Increasing the sales force

27. Which of the following is not a source of market imperfection? a. Technology b. Size of the firm c. Product differentiation d. Availability of resources e. Forces of supply and demand 28. The maximum profit condition for a monopoly firm is a. Total cost should be minimum b. Total revenue should be maximum c. Marginal revenue is equal to marginal cost d. Quantity should be maximum e. Price should be maximum 29. Four-firm concentration refers to a. The number of firms in an industry b. The four largest firm in four different and important industries in an economy c. The number of industries in an economy which have only four firms d. The percent of the total industry output that is accounted for by the largest four firms e. The percent of the total industry output that is accounted for by the largest four firms 30. Market inefficiencies can come from a. Externalities b. Monopolies c. Imperfect information d. Entry barriers e. All of the above 31. A monopolist who faces a negatively sloped demand curve operates in the region where the elasticity of demand is a. Less than 1 b. Equal to 1 c. Greater than 1 d. between 0 and 1 e. 0 32. a. b. c. d. e. In which of the following Monopoly oligopoly duopoly regulated monopoly monopolistic competition market structures the entry is least difficult?

33. Which of the follow is false in a monopolistic competition? a. Many buyers and sellers b. Identical products

c. d. e.

Easy entry and exit Price of the competitor is the benchmark price Each firm could be market leader in its product segment

34. The term differentiated product denotes a. Different products in similar packets b. Different products c. Same product used in different applications d. Different products used by a differentiated set of people e. Products whose important characteristics vary 35. Which of the following is common feature in both a monopolistic competitive market and oligopoly market? a. Product differentiation b. Interdependence among member firms c. Kinked demand curve d. Limited number of sellers e. Entries blocked 36. The term collusion refers to a. A situation in which government sets prices with the market leader in oligopoly b. A situation in which government jointly sets prices with the small players in an industry in the larger interest of the society c. A situation in which all firms in an industry decide the price and output d. A situation in which two powerful groups in an industry hand with government to rule the industry e. A situation in which central and state government jointly decide price and output for an industry 37. Which of the following does not likely to lead to the failure collusive oligopoly? a. Secret price cutting b. More number of firms c. Undifferentiated products d. Rapidly changing technology e. Competition from foreign firms 38. Price leadership refers to a. Pre-emptive pricing made possible by the learning curve b. A form of price collusion c. The maintains of a monopolistic price d. Cut throat competition e. None of the above 39. A cartel is a. A group firms which get together and make joint price and output decisions to joint profits b. Form of tacit collusion c. Type of oligopoly in which curve is kinked d. Duopoly e. None of the above

maximize

40. A zero-sum game is one in which a. The gain of one player equals the loss of another player b. The gain of one player will not equal the loss of another player c. The maximin equals the minimax d. The maximin does not equal the minimax e. The equilibrium and the dominant equilibrium are the same

Multiple Choice Question Set 3

1. Microeconomic theory studies how a free enterprise economy determines (a) prices of goods (b) the prices of services (c) the prices of economic resources (d) all of the above 2. The intersection of the market demand and supply curves for a commodity determines (a) the equilibrium price (b) the equilibrium quantity (c) the price at which there is neither a surplus nor a shortage of the commodity (d) all of the above 3. (a) (b) (c) (d) 4. (a) (b) (c) (d) The elasticity of demand is measured by the slope of the demand curve the increase of the slope of demand curve the percentage change in price for a given percentage change in quantity the percentage change in quantity for a given percentage change in price The demand curve for a commodity is more elastic the greater the number of good substitutes available the greater the proportion of income spent on he commodity longer the period of time considered all of the above

5. A complementary explanation of a downward sloping demand curve is given by (a) diminishing returns (b) diminishing marginal utility (c) decreasing costs (d) decreasing returns to scale 7. The interest paid by a firm to borrow money capital represents an (a) explicit cost

(b) implicit cost (c) opportunity cost (d) all of the above 8. (a) (b) (c) (d) 9. (a) (b) (c) (d) The wage that an entrepreneur would earn if he worked instead as a manager profit explicit cost implicit cost opportunity cost The law of diminishing return is Monetary relationship between inputs and outputs Short-run law Long-run law Questionable production relationship

for someone else in best alternative employment represents

10. The law of diminishing return begins to operate when the (a) (b) (c) (d) total product begins to rise total product begins to fall marginal product begins to rise marginal product begins to fall

11. When the law of diminishing return begins to operate, the TVC curve begins to (a) (b) (c) (d) fall at an increasing rate rise at a decreasing rate fall at a decreasing rate rise at an increasing rate

12. All of the cost curves are U-shaped except the (a) (b) (c) (d) AVC curve AFC curve AC curve MC curve

13. AFC equals the vertical distance between the (a) (b) (c) (d) AC curve and the AVC curve AC curve and the MC curve AVC curve and the AC curve All of the above

14. The MC schedule is obtained by subtracting successive values of (a) (b) (c) (d) TC TVC Either TC or TVC None of the above

15. A firms declining LAC curve over some ranges of output can be explained by (a) (b) (c) (d) diminishing return decreasing return to scale increasing return to scale increasing costs

16. The LAC curve shows the (a) minimum cost of producing various levels of output within a particular plant (b) minimum cost of producing various levels of output when plant size can be varied (c) profit maximising level of output (d) change in TC of producing various levels of output when all inputs can be varied 17. If a firm doubles all inputs in the long run and total output less than doubles, we have a case of (a) diminishing returns (b) constant returns to scale (c) increasing returns to scale (d) decreasing returns 18. In perfect competition (a) there are a large number of independent sellers, each too small to affect the commodity price (b) the product of all firms is homogenous (c) firms can easily enter or leave the industry (d) all of the above 19. A firm maximizes its total profit when (a) (b) (c) (d) TC = TC TC exceeds TR by the greatest amount TR exceeds TC by the greatest amount It is at the break-even point

20. The demand curve faced by a perfectly competitive firm is (a) negatively sloped (b) positively sloped

(c) horizontal (d) any of the above 21. MR for the perfectly competitive firm (a) (b) (c) (d) is equal to the change in TR per unit change in the quantity sold equals P is constant all of the above

22. In the marginal approach, the best level of output for a perfectly competitive firm is the output at which (a) (b) (c) (d) MR or P = rising MC MR or P = falling MC AC is lowest AVC is lowest

23. Pure monopoly may be based on (a) (b) (c) (d) increasing returns to scale control over the supply of raw materials patent or government franchise all of the above

24. In pure monopoly (a) (b) (c) (d) there is a single seller of a commodity for which there are no close substitutes there is a single seller of a commodity for which there are close substitutes there are few sellers of a commodity for which there are no close substitutes firms can enter or leave the industry in the long run without much difficulty

25. The demand curve facing the pure monopolist is (a) (b) (c) (d) negatively sloped horizontal positively sloped any of the above

26. Price discrimination involves changing different prices for a commodity (a) (b) (c) (d) for different quantities purchases to different classes of customers in different markets all of the above

27. Monopolistic competition refers to the form of market organization in which there are (a) many sellers of a homogenous product (b) many sellers of a differentiated product (c) few sellers of a homogenous product (d) few sellers of a differentiated product 28. The monopolistic competitor in the short run (a) (b) (c) (d) breaks even makes a profit incurs a loss any of the above

29. The kinked demand curve is used to rationalize (a) (b) (c) (d) collusion price competition price rigidity price leadership

30. In the long run, a monopolistic competitor (a) (b) (c) (d) incurs a loss breaks even makes a profit any of the above

31. Shut-down point is reached when (a) (b) (c) (d) price covers only AC price covers both AC and MC price covers MC but not AC price covers the minimum MC.

32. When income elasticity of demand for an essential commodity is less than unit, an increase in income leads to (a) proportionate increase in demand (b) less than proportionate increase in demand (c) more than proportionate increase in demand (d) no change in demand. 33. (a) (b) (c) (d) A firm reaches its optimum size in the long run when its total profit is maximum its LAC = LMC its MC = MR and AR = AC its total revenue is maximum

34. (a) (b) (c) (d)

An individual demand curve shifts upward because of decrease in price increase in the number of buyers increase in consumers income Snob effect.

35. In the case of inferior good income elasticity of demand is (a) (b) (c) (d) 36. (a) (b) (c) (d) Positive Zero Infinite negative Net value-added is equal to payments accruing to factors of production compensation to employees wages plus rent interest value of output minus depreciation

37. Identify the item which is not a factor payment (a) (b) (c) (d) free uniform to defence personnel salaries and allowances to the members of Parliament Imputed rent of an owner-occupied building Scholarship given to scheduled caste students.

38. National income differs from net national product at market prices by the amount of (a) (b) (c) (d) current transfers from the rest of the world net indirect taxes national debt interest it does not differ

39. Net national product at factor cost is (a) (b) (c) (d) equal to national income more than national income less than than national income always more than gross national product.

40. Transfer payments refer to payments which are made (a) without any exchange of goods and services (b) to workers on transfer from one job to another

(c) as compensation to employees (d) none of the above.

Multiple Choice Question Set 4

Q.1. A change in quantity demanded refers to (a) Contraction along a demand curve (b) Shift of the demand curve (c) Movement along a demand curve (d) Expansion along a demand curve Q.2. A change in demand refers to (a) Contraction along a demand curve (b) Shift of the demand curve (c) Movement along a demand curve (d) Expansion along a demand curve Q.3. If two goods are substitutes, the price elasticity of demand is (a) Negative (b) Positive (c) Zero (d) Not defined Q.4 If two goods are complementary, the price elasticity of demand is (a) Negative (b) Positive (c) Zero (d) Not defined Q.5. Price elasticity of demand is defined as (a) Absolute change in quantity demanded due to absolute change in price (b) Percentage change in quantity demanded due to percentage change in price (c) Relative change in quantity demanded due to change in price (d) Marginal change in quantity demanded due to marginal change in price Q.6. Total revenue will increase if (a) Demand is elastic (b) Demand is inelastic (c) Demand is unitary elastic (d) None of the above Q.7. An isoquant shows (a) All combinations of labor and capital ( same options a,c and d) (b) All combinations of good X and good Y (c) All combinations of labor and capital

(d) All combinations of labor and capital Q.8. Changes in income are shown by (a) Parallel shift of isoquant (b) Movement along the budget line (c) Parallel shift of budget line (d) Both (b) & (c) Q.9. The relationship between elasticity and total revenue

(a)

(b)

(c) (d) None of the above Q.10. In case of inferior goods the income elasticity is (a) Positive (b) Negative (c) Zero (d) None of the above. Q11. An indifference curve is the locus of (a) All the combinations of good X and Y giving different level of satisfaction (b) All the combinations of capital and labor giving same level of output (c) All the combinations of good X and Y giving same level of satisfaction (d) All the combinations of capital and labor giving different level of output Q.12. Short run in production function refers to (a) When all factors of production become variable (b) One factor of production varies keeping all other constant (c) When all factors of production become variable (d) None of the above Q.13. Opportunity cost refers to (a) The expected return from the use of the resource (b) The expected return from the second best alternative use of the resource (c) Accounting cost less of unilateral transfers (d) None of the above Q.14 Long run average cost curve is also known as

(a) Envelope curve (b) Angel curve (c) Laffer curve (d) None of the above Q.15. Internal economies of scale determine (a) The position of long run average cost curve (b) The shape of long run average cost curve (c) The shape of short run average cost curve (d) The position of short run average cost curve Q.16. The nature and shape of AFC is (a) A rectangular Hyperbola (b) A horizontal Line (c ) It is "U" shaped (d) A vertical Line Q.17. Which one of the statement is correct (a) All costs are variable costs in the long run except LMC (b) TFC is inverse "S "Shaped reflecting Laws of Returns, (c) Over a very long range of Operation, AFC is Zero, (d) None of the above is correct. Q.18. Explicit cost is also known as (a) Imputed Cost (b) Implied Cost (c) Accounting Cost (d) Opportunity Cost Q.19. The use of highly structured meeting agenda and restricted discussion or interpersonal communication during the decision making process is known as (a) Nominal Group Technique, (b) Brainstorming, (c) Delphi Group Technique, (d) Both (b) & (c) Q.20. Variation in Data occurring due to regularly recurring fluctuations in economic activity during each year is (a) Cyclical fluctuations (b) Seasonal Variations (c) Random Variation (d) Irregular Variation Q.21. In the short run the supply curve of a firm in perfectly competitive market is (a) Average cost curve (b) Total cost curve (c) Marginal cost curve (d) None of the above

Q.22. A firm is price taker in perfect competition market structure because (a) Single firm supplies significant part of total market supply (b)Single firm supplies insignificant part of total market supply (c) Single firm supplies Homogeneous product (d) Both (b) and (c) Q.23. Highest degree of allocative inefficiency is the feature of (a) Perfect competition (b) Monopoly (C) Oligopoly (d) Not defined Q.24 Cartels and collusion are (a) Illegal activities (b) Legal framework (C) Authorized framework (d) Not defined Q.25. As more labor is added to a fixed amount of input, the rate at which output goes up begins to decrease. This is called (a) Diminishing marginal utility. (b) Diminishing marginal productivity, (c) Diminishing marginal costs. (d) Diminishing marginal profit. Q.26. If the cost of sugar rises and sugar is a major ingredient in jelly beans, then the jelly bean (a) demand curve shifts to the left. (b) supply curve shifts to the left, (c) supply curve shifts to the right. (d) demand and supply curves both shift to the right. Q.27.Which one of the following is not the characteristic of Perfect Competition (a)All firms sell an identical product. (b)All firms are price takers. (c)All firms have a relatively small market share. (d) Buyers do not know the nature of the product being sold and the prices charged by each firm. Q.28. Which one of the following is not the characteristic of demand (a) There should be the willingness to purchase (b) There should be the capacity to purchase (c) Specific time frame

(d) Real market place is required Q.29. For a normal good: a) The price elasticity of demand is negative; the income elasticity of demand is negative b) The price elasticity of demand is positive; the income elasticity of demand is negative c) The price elasticity of demand is negative; the income elasticity of demand is positive d) The price elasticity of demand is positive; the income elasticity of demand is positive Q.30. which of the following is true? a) If the marginal cost is greater than the average cost the average cost falls b) If the marginal cost is greater than the average cost the average cost increases c) If the marginal cost is positive total costs are maximised d) If the marginal cost is negative total costs increase at a decreasing rate if output increases Q.31. If marginal cost is positive and falling: a) Total cost is falling b) Total cost is increasing at a falling rate c) Total cost is falling at a falling rate d) Total cost is increasing at an increasing rate Q.32. To maximise sales revenue a firm should produce where: a) Marginal cost is zero b) Marginal revenue is maximised c) Marginal revenue is zero d) Marginal revenue equals marginal cost Q.33. Normal profit occurs when: a) Average revenue equals average variable cost b) Marginal revenue equals marginal cost c) Average revenue equals marginal cost d) Average revenue equals average cost Q.34 Barriers to entry: a) Do not exist in monopoly b) Cannot exist in oligopoly c) Do not exist in monopolistic competition d) Do exist in perfect competition Q.35. Which best describes price discrimination? a) Charging different prices for different products b) Charging the same prices for different products

c) Charging the same prices for the same products d) Charging different prices for the same products Q.36. In perfect price discrimination: a) Consumer surplus is maximized b) Consumer surplus is zero c) Producer surplus is zero d) Community surplus is maximized Q.37. In perfect price discrimination: a) The demand curve is the marginal cost curve b) The average revenue equals the average cost c) The marginal cost is the average cost curve d) The demand curve is the marginal revenue Q.38. If a few firms dominate an industry the market is known as: a) Oligopoly b) Competitively monopolistic c) Duopoly d) Monopolistic competition Q.39. In case certain goods are not sold within a reasonable time, the retailer pulls the price down, it is known as (a) Adjustment pricing (b) Administered pricing (c) Mark-down pricing (d) Mark-up pricing Q.40. This pricing strategy acts as a barrier to entry to new firms (a) Limit Pricing (b) Administered Pricing (c) Peak -Load Pricing (d) Skimming Pricing Instant Downloadable Solution from AiDLo.com