MBA I Semester I

Economics for Managers - Sample Paper

Time: Total Marks: 70
[Note: The Question Paper has five Questions of 14 marks each. It is compulsory to attempt all
the questions.]


Q.1. Answer all the following multiple choice questions: (14 marks)


1. The quantity that a consumer plans to buy depends upon all of the following EXCEPT
i. Income of the Consumer
ii. Price of the Product
iii. Future Expectation of Price
iv. Technology
2. Suppose wage of labour of a firm rise. What would happen to the equilibrium price and
equilibrium quantity for the firms output?
i. Price Increases; Quantity Decreases
ii. Price Decreases; Quantity Increases
iii. Price Decreases; Quantity Increases
iv. Price Increases; Quantity Increases
3. A good or service for which an increase in income causes customers to demand more of
the good, holding all other variables in the generalised function constant are called
i. Inferior Goods
ii. Normal Goods
iii. Substitute
iv. Complements
4. A Perfectly Competitive firm can sell all the outputs it wants to:
i. By cutting down supply of output
ii. By lowering the price it charges for each additional unit produced
iii. By lowering its cost of production
iv. Without lowering the price
5. A profit maximizing monopolist produces a quantity corresponding to:
i. MR=MC
ii. P=MC
iii. P=MR
iv. P=AR=MR=MC
6. Real GDP is measured
i. At constant Price
ii. At Current Price
iii. At Market Price
iv. At Wholesale Price
7. Consumer Price Index differs from GDP deflator for
i. CPI takes account of all goods and services purchased by consumers
whereas GDP deflator considers domestically produced goods only
ii. CPI is calculated at market price whereas GDP deflator is calculated at
factor cost
iii. CPI shows trends in inflation whereas GDP deflator shows trend in
deflation
iv. CPI is calculated by asking consumers preference whereas GDP
deflator is calculated by asking Producers preference
8. Following are the tools used by RBI for money control EXCEPT
i. Open Market Operations
ii. Reserve requirement
iii. The Discount Rate
iv. Deficit finance
9. Many years ago Janaki paid Rs. 500 to put together record collection of Nazia Hussein.
Today she sold her collection at Sunday Gujari Market for Rs. 100. How does this sale affect
current GDP?
10. Why per capita income goes up if a chicken a born whereas it falls if a child is born?
11. Is the slope of the demand curve for monopolistic competition is flatter than that of a
monopoly firm?
12. When an economy is experiencing both stagnation and inflation, what is such an event
called? Show it diagrammatically.
13. Explain the concept of Sunk Cost.
14. Explain the difference between nominal and real exchange rate.

Q.2 (a) Explain the Following with Appropriate Example (7 Marks)

1. Stagflation (3 Marks)
2. Dumping(2 Marks)
3. Natural Monopoly(2 Marks)

Q.2 (b) Define the price elasticity of demand. Explain important determinant of price elasticity
of demand. If demand is unit elastic, how will a decline in price affect total revenue? (7 Marks)

OR
Q.2 (b) How and why does a firms average-total-cost curve differ in the short run and
in the long run? Explain economies of scale and diseconomies of scale.(7 Marks)


Q.3 (a) What is meant by Perfect Competition? Under what conditions will a firm shut down
temporarily? Explain with help of appropriate diagram. (7 Marks)
Q.3 (b)Consider the following table of long-run total cost for three different firms:
Quantity 1 2 3 4 5 6 7
Firm A 60 70 80 90 100 110 120
Firm B 11 24 39 56 75 96 119
Firm C 21 34 49 66 85 106 129
Does each of these firms experience economies of scale or diseconomies of scale?

OR
Q.3 (a)What is the prisoners dilemma, and what does it have to do with oligopoly? (7 Marks)
Q.3 (b)Suppose there is a sudden increase in preference for chocolates. But the cost of
production rises due to rise in the price of milk. Use demand and supply model, to determine
what happens to the equilibrium price and quantity in this case. (7Marks)


Q.4 (a)Draw a circular flow of income diagram representing the interaction between
households and firms in a simple economy. Explain briefly various parts of the diagram.
(7 Marks)
Q.4 (b) The data on tea demand and tea price in India for two years were as follows:

Year Demand (000 tonnes) Price (1993-94=100)
2001-02 669 128.1
2007-08 871 130.9

The Comment of a prominent politician on this data is as follows:
This clearly shows that the law of demand is not operating in the Indian Sugar market. The
price went up yet consumers bought more. We can not rely on outdated economic concepts from
the previous century for an analysis of current problems.

Do you agree with this observation? How would you interpret the above given data?
OR

Q. 4 (a)How the Phillips curve is related to the model of aggregate demand and
aggregate supply(7 Marks)
Q.4 (b)In the year 2005, the economy produces 100 liters of milk that sell for Rs. 18 each. In the
year 2006, the economy the economy produces 200 liters of milk that sell for Rs. 20 each.
Calculate nominal GDP, real GDP and the GDP deflator for each year. (Use 2005 as the base
year) By what percentage does each of these three statistics rise from one year to the next?
(7Marks)

Q.5 Case Study (14 Marks)
MBA syllabus of Gujarat Technological University recommends two books for Managerial
Economics studies. These are the books by Gregory Mankiw and Samuelson &Nordhaus.
Mankiws book is priced at Rs. 140 while Samuelson &Nordhauss book costs Rs. 115. Both the
books are readily available in the market and the publishers ensure that these are never stocked
out. Mankiws book sells more than that by Samuelson &Nordhaus and their publisher tried at
least to have parity with the sale of Mankiws book. Many financial incentives provided by the
publisher proved to be of a little use and the two books continued to maintain a long term ratio of
10:9, though there were temporary marginal variations in the ratio. Samuelson &Nordhaus were
persuaded by thr publishers to revise and enlarge their book. The publishers gave Samuelson
&Nordhaus the examination papers and syllabus of 15 universities across the length and breadth
of the country. The aim was to ensure that the coverage of the subject was improved and
emphasis was placed on the topics which often appear in the examinations. Samuelson
&Nordhaus spent 11 months for revising the book and the publishers ensured that specimen/
complimentary copies of the revised enlarged edition were in the hands of all the concerned
faculty members well before the commencement of the session. The hard work of the author paid
and the sales of the book improved. The sales of two competing book were equal, i.e. a parity
had been achieved between the two books. This sales information brought dismay to the
publishers of Mankiews books. Though Mankiw was not bothered. He did not go through his
book after repeated request ofhis publishers but decided that the book needed no major changed
but for a few topographical mistakes. The publishers tried price elasticity and brought down the
price of Mankiws book to Rs. 11o.
Consider the situation and the environment of the university as described above. What do you
feel will be the reactionn to this price advantage? What are the chances of Mankiws book
improving? Will the earlier ratio of 10:9 in favour of Mankiws book be achieved? Give reasons
for your views. What can the publishers and Mankiw can do to bring back the advantage to
enjoyed by Mankiews books over the years?
OR
Q.5
(a) Following table provides some of the values of cost for different level of output for an auto
mobile firm. Calculate the missing values. How much should the firm produce in order to attain
the maximum cost efficiency? (7 Marks)
(All Values are in Rs. Crores)
Output Total
Cost
Total
Fixed
Cost
Total
Variable
Cost
Average
Fixed
Cost
Average
Variable
Cost
Average
Total
Cost
Marginal
Cost
100 260 - 60 - - - -
200 - - - - - - 0.30
300 - - - - 0.50 - -
400 - - - - - 1.05 -
500 - - 360 - - - -
600 - - - - - - 3.00
700 - - - - 1.60 - -
800 2,040 - -- - - - -


(b).Explain whether each of the following events shifts the short run aggregate demand curve, the
aggregate supply curve, both, or neither. For each event that shifts a curve, use a diagram to
illustrate the effect on the economy. (7Marks)
a. In the national budget there is more incentive to save, so households decide to
save more.
b. Entire North India suffers 50 per cent deficiency in rain fall.
c. Increased job opportunities overseas cause many people to leave the country.