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Roll Number:
Managerial Economics- Term 1, 2015
Midterm
Instructions
1. Answer all Questions. Please make sure your answers are lucidly
written and well explained
2. There is no negative marking for Multiple Choice Questions
3. Maximum points 100 points
4. Time available 150 minutes
1. An individual demand curve can be derived from which of the following curves?
a.
b.
c.
d.
e.
price-consumption
price-income
income-substitution
income-consumption
Engel curve
5. Consider a supply curve of the form: Q = c + dP. If d equals zero then supply is:
b.
a. completely inelastic.
inelastic, but not completely inelastic.
c. elastic, but not infinitely elastic.
d. infinitely elastic
An individual prefers more vegetables but is indifferent between the quantity of music
consumed. Indifference curve for this person between Vegetables (X axis) and Music (Y
axis), is
a.
b.
c.
A horizontal curve
d.
A vertical curve
labor.
capital and equipment.
plant size.
all of these.
9. If a consumer must spend her entire income on some combination of two commodities and
chooses to spend it all on just one of the commodities then:
a.
b.
c.
d.
12.
If we take the production function and hold the level of output constant, allowing the
amounts of capital and labor to vary, the curve that is traced out is called:
a.
b.
c.
d.
e.
13. If X and Y are perfect substitutes, which of the following assumptions about indifference
curves is not satisfied?
a.
b.
c.
d.
e.
14.
15
completeness.
transitivity.
more is preferred to less.
diminishing MRS.
none of the above
Which of the following would cause a shift to the right of the supply curve for
gasoline?
I.
I only.
II only.
III only.
II and III only.
a.
b.
c.
d.
e.
17. Which of the following statements correctly uses the concept of opportunity cost in
decision making?
I. "Because my secretary's time has already been paid for, my cost of taking
on an additional project is lower than it otherwise would be."
II. "Since NASA is running under budget this year, the cost of another space
shuttle launch is lower than it otherwise would be."
a.
b.
c.
d.
18.
Which of the following assertions, if proven true in a court of law, would help ArcherDaniels Midland, a maker of corn syrup, in its attempt to acquire another corn syrup
producer, the Clinton Corn Processing Company?
a. Archer-Daniels-Midland is a dominant producer of corn syrup.
b. There are no good substitutes for corn syrup for any of its major uses.
c. Archer-Daniels-Midland and the Clinton Corn Processing Company
together hold only a small share of the market for sweeteners including
corn syrup and sugar.
d. Archer-Daniels-Midland produces many other different agricultural
products, in addition to corn syrup.
19. In 1992, the Occupational Safety and Health Authority passed the Bloodborne Pathogens
Standard (BBP), which regulates dental office procedures. This regulation is designed to
minimize the transmission of infectious disease from patient to dental worker. The effect of
this regulation was both to increase the cost of providing dental care and to ease the fear of
going to the dentist as the risk of contracting an infectious disease.
Under what circumstances will the equilibrium level of output of dental care remain the
same?
a.
b.
c.
d.
20.
A
B
C
Capital
5
15
10
Labour
8
6
7
If baskets A and B are on the same isoquant curve and if isoquant exhibit
diminishing MRTS:
a.
b.
c.
d.
You have been hired by Coca Cola to devise their best differential pricing
strategy.
(a) (20 points) Assume Coca Cola segments the market into two
groups- Group A and B. (You can motivate these groups by keeping
in mind one of your market segmentation mentioned in (a) ).
Assume that consumers in Group A and B have preferences
UA(x, C) = C0.2x0.8
UB(x, C) = C0.7 x0.3
Where x: is quantity of product x and C is the quantity of 200 ml
Coca Cola.
If the average income in Group A is Rs 80,000 per month and that of
Group B is Rs 40,000 per month and price of x is Re 1. Find the
aggregate demand curve for Coca Cola. Assume group size of A is
100 and that of B is 50.
(b) (10 points) Assume that Coca Cola has dropped the idea of
differential pricing but is mindful of the segmented market.
Starting this month, all Coca-Cola's beverages in 200 ml bottles
will be sold at a flat Rs 10, down from Rs 15, a top trade official told
ET Magazine. "It's heavy discounting and at the cost of profitability.
The company is pushing volumes almost as if in panic," he says.
Faced with slowdown threat, Coca Cola & Pepsico experiment with
strategies to push volumes growth The Economics Times, June 2013
How did revenue change for Coca Cola based on your analysis in
(b)? What can you say about its arc elasticity in this range for
the aggregate demand curve?