MB0026 – Managerial Economics

1. Which economic category is widely used in Managerial economics?

a) Business Economics
b) Macro
c) Micro
d) None of these
2. Opportunity cost is cost related to
a) Using extra person to work.
b) Production of an item by sacrificing other item.
c) High-end cost.
d) Utilizing best resources.
3. Which is the main assumption of “Law of Demand”.
a) Income always changes with time.
b) Preference effect is visible in Law of Demand.
c) Price does not affect Demand.
d) None of these.
4. The demand curve shows ________ relationship between price and quantity.
a) Negative
b) Elastic
c) Positive
d) None of these

5. What is perfectly elastic demand?

a) Small changes leads to negative change in quantity demanded.
b) Small changes leads to very substantial change in quantity demanded.
c) Small changes leads to small change in quantity demanded.
d) Substantial changes leads to small change in quantity demanded.
6. In perfectly Inelastic curve Ep = ____?
a) 1
b) 0
c) –Ve
d) +Ve
7. In relatively elastic demand small change in price leads to ______ change in quantity demanded.
a) Big
b) Small
c) No change
d) None of these
8. For luxuries and comfort the Ep is ____?
a) 0
b) <1
c) >1
d) Unit Elastic
9. Advertisement elasticity of demand is related to
a) Cross Elasticity of Demand
b) Demand Elasticity
c) Price Elasticity
d) Income Elasticity
10. What elements are necessary for good demand forecasting?
a) Accuracy
b) Flexibility
c) Acceptability
d) All of these
11. Relationship between price and quantity is ________.
a) Negative
b) Positive
c) Neutral
d) None of these
12. The Supply curve shift when there is change in quantity supplied due to _____________.
 a) Increase in Price
b) Decrease in price
c) Income level Increases
d) None of these
13. Price elasticity of supply is ____________?
a) ∆q * q
b) ∆q * p
c) ∆p * q
d) ∆p * p
14. If demand and supply change at the same time, the equilibrium price and quantity will ___________.
a) Change
b) No effect
c) Remain Constant
d) None of these
15. Costs that are involved in actual payment is _________ cost.
a) Explicit
b) Implicit
c) Sunk
d) Incremental
16. Costs that will not change with any kind of changes.
a) Explicit
b) Implicit
c) Sunk
d) Incremental
17. _______ cost has more importance in real world’s business.
a) Explicit
b) Implicit
c) Sunk
d) Incremental
18. Fixed costs are those costs, which are incurred even when output is ________.
a) Optimal
b) Zero
c) Constant
d) Highest
19. All fixed costs are become variable in __________ period.
a) 10 years
b) Smaller
c) Longer
d) None of these
20. Long run average cost curve derived from
a) Long run marginal cost curve
b) Short run average total cost
c) Short run price curve
d) None of these
21. Law of variable proportion is also called __________.
a) Economies of Scale
b) Scope function
c) Law of higher returns
d) Law of diminishing returns
22. Stage one of Law of Returns to scale is: -
a) Constant returns to scale
b) Negative returns to scale
c) Diminishing returns to scale
d) Increasing returns to scale

23. Economies are ______ to a firm when it expands in it size.

 a) Internal
b) External
c) Expandable
d) None of these
24. Pecuniary internal economics also called _______ internal economics.
a) Marketing
b) Monetary
c) Technical
d) None of these
25. Diseconomies arise when large output leads to _______ per unit cost.
a) Diminishing
b) Constant
c) Higher
d) None of these
26. Under utilized capacity can be exploited when _________ product(s) is/are produced.
a) Multiple
b) Single
c) Two
d) None of these
27. A firm is a transformation unit. Which theory conveys this?
a) Profit maximization
b) Behavioral theory
c) Marris Growth maximization
d) Economist theory
28. What is the primary objective of firm in long run?
a) Increasing Shareholder’s Wealth
b) Survival
c) Profit
d) Consistency
29. How many goals constitute Behavioral theory of Cyert & March?
a) 5
b) 6
c) 7
d) 9
30. Payments done to various groups in excess to what is required to maintain in the organization is _________.
a) Money
b) Side
c) Slack
d) Extra
31. The assumption, diversification leads to growth of the firm applied in ____________.
a) Profit maximization
b) Marris Growth maximization
c) Behavioral Theory
d) Economist theory
32. Sales maximization model’s main concern is on. –
a) Profit
b) Advertisement Expenditure
c) Price
d) None of these
33. If the price elasticity of demand for a product is relatively inelastic (Ep<1), than a firm can ______ price to increase
total revenue.
a) Decrease
b) Increase
c) Not Change
d) None of these
34. In which pricing policy company fixes prices according to the existing price of similar product in market?
a) Marginal cost pricing
b) Initiative pricing
c) Going-rate policy
d) None of these
35. If a firm initially charges high price and the cream of market is consumed it is known as ________ policy.
a) Low penetrating pricing
b) Skimming pricing
c) Cost-plus pricing
d) Initiative pricing
36. No cost of Transportation is a feature of: -
a) Oligopoly
b) Monopoly
c) Monopolistic
d) None of these
37. In perfect competition firms are price _________.
a) Maker
b) Taker
c) Decider
d) All of these
38. In long run, under perfect competition the firm incurs __________.
a) Loss
b) Abnormal Profits
c) Normal profits
d) Huge loss
39. Which industry, with passage of time becomes perfectly competitive?
a) Pharmaceutical
b) Oil & gas
c) Agriculture
d) Steel
40. In which degree of price discrimination there is maximum exploitation of consumers?
a) First degree
b) Second degree
c) Third degree
d) None of these
41. In which market structure seller has control over the price?
a) Oligopoly
b) Monophony
c) Perfect
d) Monopoly
42. If in Monopoly seller will charge separate price in such a way that buyer is divided into different groups according
to the price elasticity of demand for its product, then which degree of price discrimination exists?
a) First degree
b) Second degree
c) Third degree
d) None of these
43. Single buyer, single seller is the condition of ____________.
a) Monophony
b) Bilateral Monophony
c) Oligopoly
d) Monopolistic
44. In which market structure competition is toughest?
a) Monophony
b) Bilateral Monophony
c) Oligopoly
d) Monopolistic
45. Interdependence and selling & advertisement costs are the features of; -
a) Monopolistic
b) Oligopoly
c) Perfect
d) Monophony
46. Price leadership is a form of: -
a) Cartel
b) Market structure
c) Common group
d) None of these
47. In all type of market structure we can see definite demand curve except _____________.
a) Monopoly
b) Oligopoly
c) Monophony
d) Monopolistic
48. In __________ leadership the oldest and most experienced firm becomes the price leader.
a) Low cost
b) Barometric
c) Aggressive price
d) Dominant
49. When firms jointly fix a price & output policy through agreement it is known as: -
a) Oligopoly
b) Monophony
c) Cartel
d) None of these
50. __________ market structure faces a kinked demand curve.
a) Monopoly
b) Oligopoly
c) Monophony
d) Perfect
51. In which market structure there is high tendency of price war?
a) Oligopoly
b) Monopolistic
c) Monophony
d) Perfect
52. The concept of consumer surplus is based on demand theory of ___________.
a) Marshall
b) Harshall
c) Debie
d) Harison
53. The difference between the amounts the consumer is willing to pay and what he actually pay known as ______.
a) Producer’s Surplus
b) Supplier’s Surplus
c) Consumer’s Surplus
d) None of these
54. Subsidies on products leads to _____________.
a) Producer’s Surplus
b) Supplier’s Surplus
c) Consumer’s Surplus
d) None of these
55. ________ leads to lack of economic competition, which creates dead weight loss.
a) Monopsony
b) Oligopoly
c) Monopoly
d) Monopolistic
56. __________ economics deals with economic behavior of the society.
a) Micro
b) Macro
c) Historical
d) None of these
57. _________ saving is an amount that the people intend to save out of their income.
a) Fixed
b) Variable
c) Ex-post
d) Ex-ante
58. Y/L signifies (Y = national income, L = Employment)
a) Labor Output Ratio
b) Capital Labor Ratio
c) Output Labor Ratio
d) Capital Output Ratio
59. Average propensity to consume can be defined as: -
a) C/Y
b) S/Y
c) Y/C
d) Y/S
60. If marginal propensity to consume – 1, multiplies will be __________.
a) 1
b) Infinite
c) Zero
d) None of these
61. Investment, which will happen even if income is Zero known as __________.
a) Net investment
b) Induced investments
c) Autonomous investment
d) Public investment
62. Credit policy is a subset of ___________.
a) Monetary policy
b) Fiscal policy
c) Physical Policy
d) All of these
63. ________ rate refers to the rate of interest at which the central bank re-discounts approved bills of exchange.
a) Charge
b) Interest
c) SLR
d) Bank
64. Full employment is the objective of __________.
a) Monetary policy
b) Fiscal policy
c) Both a & b
d) None of these
65. Qualitative instruments of monetary policy are:
a) SLR
b) CRR
c) Bank Rate
d) None of these
66. Which lag is classified when economy takes time to respond to the action taken by the instrument in monetary policy?
a) Outside Lag
b) Intermediate Lag
c) Inside Lag
d) Production Lag
67. Which phase of business life cycle exist when there is fall in production and employment throughout the economy.
a) Depression
b) Recession
c) Expansion
d) None of these

68. According to Schumpeter theory, _______ is the introduction of a new product in a full employment economy.
a) Innovation
b) Invention
c) Discovery
d) None of these

69. In which theory too much importance is given to Bank Credit?

a) Over-Investment
b) Schumpeter
c) Pure Money
d) None of these

70. In a Fiscal policy, government is increasing public spending when economy is in _______ stage.
a) Inflation
b) Depression
c) Growth
d) None of these

71. If in monetary policy banks raised the rate of interest, it is due to ____________.
a) Inflation
b) Depression
c) Growth
d) None of these

72. Trade union and monopoly power of the supplier of raw materials are blamed for cost-push inflation.
a) True
b) False
c) Not possible
d) None of these

73. External cost are said to be _____ externalities and external benefits are said to be _________ externalities.
a) Negative, negative
b) Negative, positive
c) Positive, negative
d) Positive, positive
Section B
Each Question carries 2 Marks
74. Manager has to take decision related to
1) Demand
2) Cost & production
3) Profit management
4) Price
a) 1, 2 & 3
b) 1, 3 & 4
c) 2, 3 & 4
d) All of these

75. Economics has two broad categories ____________ & ___________ economies.
1) Multi
2) Micro
3) Related
4) Macro
a) 1&3
b) 3&4
c) 2&4
d) 1&4
76. Demand is called demand when ________ is backed by _______.
1) Desire
2) Purchasing Power
3) Parents Power
4) Want
a) 1&3
b) 3&4
c) 2&4
d) 3&4
77. Factors effecting demand other than price are: -
1) Status
2) Price of related product
3) Income
4) Taste
a) All of the above
b) 1, 2 & 4
c) 2, 3 & 4
d) 1, 3 & 4
78. The country has to taken an account of income elasticity of demand for its ________ & _________.
a) Loans & Payments
b) Creditors & debtors
c) Imports & Exports
d) None of these
79. If the supply increases, price wills ________ and the quantity __________.
a) Increase, Increase
b) Increase, Decrease
c) Decrease, Increase
d) Decrease, Decrease
80. Which are real internal economies of scale?
1) Marketing economies
2) Economies of welfare
3) Technical economies
4) Risk bearing economics
a) 1&4
b) 2, 3 & 4
c) 1&3
d) All of the above
81. Which criticisms belongs to Marris growth maximization theory: -
1) They ignore interdependence in oligopoly market.
2) Growth rate of the firm can be constant.
3) Profits, sales and cost changes in the same pace are unrealistic.
4) All of these
a) 1&3
b) 4
c) 1&2
d) 1, 2 & 3
82. In revenue curve equilibrium point is that where _______ is equal to __________.
a) Marginal revenue and marginal cost
b) Total revenue and Total cost
c) Average revenue and average cost
d) None of these
83. Characteristics of market structure are: -
1) Entry and exit barriers
2) Product difference
3) Price variance
4) Number of sellers
a) 1, 2 & 4
b) 2, 3 & 1
c) 2, 3 & 4
d) 3&4
84. ________ aims at maximum profit where as _______ aims at maximum consumer’s surplus.
a) Monopoly & Monopsony
b) Monopsony & Oligopoly
c) Monopsony & Monopoly
d) Oligopoly & Monopsony

85. Features of monopolistic market structure are: -

1) Homogenous products
2) Single buyer and many sellers
3) Advertisement costs are high
4) Entry barriers are there
a) 1, 3 & 4
b) 2, 3 & 4
c) 3&2
d) Only 3

86. Producer’s surplus ___________ with increase in price and _________ with decrease in price.
a) Increase, Decrease
b) Decrease, Increase
c) Increase, Increase
d) Decrease, Decrease

87. _________ is always measures at a given point of time and _______ is measured over a given period of time.
a) Flows, Stock
b) Stock, Flows
c) Capital, Flows
d) Flows, Capital

88. For inflation statistics we refer to: -

1) GDP
2) WPI
3) CPI
4) Cost of living adjustments
a) 2&3
b) 2, 3 & 4
c) 1&4
d) All of these

89. What can be the determinants of consumption function?

a) Foresight motive
b) Status Motive
c) Precaution Motive
d) Standard of Living
a) 2&4
b) 2, 3 & 4
c) 1, 3 & 4
d) All of these

90. Assumptions of Multiplier are: -

1) Leakages are there
2) No time lag
3) Autonomous investments
4) Availability of idle capacity
a) 2, 3 & 4
b) 1, 3 & 4
c) 3&4
d) All of these

91. If MEC < rate of interest the additional investment will get ________ and investment is _______ profitable.
a) Loss, Not
b) Profit, Not
c) Profit, Always
d) Loss, Always
92. ___________ affect the overall aggregate demand of the economy.
1) Physical Policy
2) Monetary policy
3) Fiscal policy
4) All of these
a. 1&2
b. 2
c. Both 2 & 3
d. 4

93. Which theory of business cycle assumes that there is full employment condition in the economy?
1) Pure Money
2) Over-Investment
3) Schumpeter
4) Multiplier-Acceleration
a. 1&3
b. 2&4
c. Both 2 & 3
d. All of these

94. Features of monopoly market are: -

1) Barriers for entry of firm
2) Firms are price takers
3) No close substitute
4) Single sellers or producers
a) 1, 2 & 3
b) 1, 2 & 4
c) 2&3
d) All of these

95. Law of return to scale assume: -

1) Technological changes are present
2) Technological changes are absent
3) All factors of production are variable
4) Some factors of production are always fixed
a) 1&4
b) 2&3
c) 1&3
d) None of these

96. Characteristics of Giffen goods

1) Price decreases with decrease in quantity demanded.
2) Price increases with increase in quantity demanded.
3) Law of demand states true here.
4) No affect what so ever happen.
a) Only 3
b) 1&2
c) All of these
d) None of these

97. Objectives of pricing policy are: -

1) Price stability
2) Ability to pay
3) To maximize profits
4) Capture the market
a) 1, 3 & 4
b) 2, 3 & 4
c) 1, 2 & 3
d) All of the above
 Section C
Each Question carries 4 Marks
98. Match the followings: -
1) Ep > 1 e) Relatively elastic
2) Ep = 0 f) Unit Elastic
3) Ep < 1 g) Relatively Inelastic
4) Ep = 1 h) Perfectly Elastic
A. 1 - g, 2 - h, 3 - e, 4 - f
B. 1 - e, 2 - h, 3 - g, 4 - f
C. 1 - g, 2 - h, 3 - f, 4 - e
D. 1 - e, 2 - g, 3 - h, 4 - f

99. Match the followings: -

1) Perishable goods e) Indirect Tax
2) VAT f) Longer span
3) Property Tax g) Direct Tax
4) Durable goods h) Shorter span
A. 1 - g, 2 - h, 3 - e, 4 - f
B. 1 - h, 2 - g, 3 - e, 4 - f
C. 1 - h, 2 - e, 3 - g, 4 - f
D. 1 - f, 2 - e, 3 - g, 4 - h

100. When the price of commodity X is Rs. 10 per unit, the quantity demanded is 30 units. When the price X rises from Rs. 10
to Rs. 15 and the quantity demanded decreases to 20 units. Calculate the price elasticity of Demand?
a) –0.66
b) –0.5
c) 0.66
d) 0.5

101. Find average fixed cost, when variable cost is Rs. 10 per unit, total fixed cost is Rs. 500 and quantity is 100 units.
a) 50
b) 60
c) 5
d) 6
102 State True or False
1. Forecasting is a substitute for management judgment in decision-making.
2. Whether the product is an established product or new product, it effect demand forecasting.
3. Equilibrium is the position from where there is no tendency to move.
4. Total variable cost does not change with change in output.
a. T, T, T, T
b. F, F, F, F
c. T, T, F, F
d. F, T, T, F
103 State True or False
1. Profit maximization is the main aim of Marris growth maximization model.
2. Profit maximization theory predicts the behavior of the firm but fails to explain it.
3. Sequential hearing to demand is a qualitative form of Incentive.
4. If we think about shutdown point, the firm may go on producing till the loss is less and equal to Total Fixed cost.
a. T, T, T, T
b. F, F, F, F
c. T, T, F, F
d. F, F, T, T
104 State True or False
1) In monopoly market structure (MR) will always greater than (AR)
2) Investment done by the government for social purpose has no connection with the MEC.
3) Over investment theory ignored the non-monetary factors like innovation, climate conditions, psychological factors.
4) Physical policy is developed to balance inflation.
a. F, T, F, F
b. F, F, F, F
c. T, T, F, F
d. F, F, T, T
105. Match the followings: -
1) Central Bank e) Physical policy
2) Central Government f) Monetary Policy
3) Sales revenue g) Fiscal Policy
4) Foreign Trade Control h) Business Policy
a. 1 - g, 2 - h, 3 - f, 4 - e
b. 1 - h, 2 - g, 3 - e, 4 - f
c. 1 - h, 2 - e, 3 - g, 4 - f
d. 1 - f, 2 - g, 3 - h, 4 - e

106. What is cost push inflation?

a. A situation where the price level decreases because the cost of production increases.
b. A situation when the demand increases and is in excess of supply of goods and resources available, the price increases.
c. A situation where the price level increases because the cost of production decreases.
d. None of these

107. Match the followings: -

1) Running Inflation e) 3%
2) Creeping Inflation f) 3-6%
3) Hyper Inflation g) 10 %
4) Walking Inflation h) Basket full of money & pocket full of commodities
a. 1 - g, 2 - e, 3 - h, 4 - f
b. 1 - h, 2 - g, 3 - e, 4 - f
c. 1 - h, 2 - e, 3 - g, 4 - f
d. 1 - g, 2 - f, 3 - h, 4 - e
Answers: -
1 -c 2 -b 3 -d 4 -a
5 -b 6 -b 7 -a 8 -c
9 -a 10 - d 11 - b 12 - c
13 - b 14 - a 15 - a 16 - c
17 - d 18 - b 19 - c 20 - b
21 - d 22 - d 23 - a 24 - b
25 - c 26 - a 27 - d 28 - b
29 - b 30 - a 31 - c 32 - b
33 - b 34 - c 35 - b 36 - d
37 - b 38 - c 39 - a 40 - a
41 - d 42 - b 43 - b 44 - d
45 - b 46 - a 47 - b 48 - b
49 - c 50 - b 51 - a 52 - a
53 - c 54 - c 55 - c 56 - b
57 - d 58 - c 59 - a 60 - b
61 - c 62 - a 63 - d 64 - c
65 - d 66 - b 67 - a 68 - a
69 - c 70 - b 71 - a 72 - a
73 - b 74 - d 75 - c 76 – c
77 - c 78 - c 79 - c 80 - d
81 - a 82 - a 83 - a 84 - a
85 - a 86 - a 87 - b 88 - b
89 - d 90 - a 91 - a 92 - c
93 - c 94 - b 95 - b 96 - b
97 - d 98 - b 99 - c 100 - a
101 - c 102 - d 103 – d 104 – a
105 - d 106 – d 107 – a