Economics for Managers 

BLOCK 1 (CASE STUDY) 

Question 1

Strategy A has an expected value of 10 and a standard deviation of 3. Strategy B has an expected value of 10 and a standard deviation of 5. Strategy C has an expected value of 15 and a standard deviation of 10. Which one of the following statements is true?
            
"A risk averse decision maker will always prefer A to B, but may prefer C to A"
A risk neutral decision maker will always prefer C to A or B
A risk seeking decision maker will always prefer C to A or B
All of the above are correct

Question 2

Benefits of the opportunity cost approach to individual decision making:
focuses on the economic ramifications of choices and expresses what is given up (a net benefit) by making a choice.
"Opportunity costs are subjective, existing in the minds of decision makers."
"Economic profit would be total revenue minus all costs, including both explicit costs of purchased inputs and implicit (opportunity) costs of owner provided resources. "
All of the above

Question 3
    "If a person's utility doubles when their income doubles, then that person is risk"
            
averse
neutral
seeking
None of the above

Question 4
    A situation in which a decision maker must choose between strategies that have more than one possible outcome when the probability of each outcome is unknown is referred to as
            
diversification
certainty
risk
Uncertainty

Question 5
    Which one of the following does measure risk?            
Coefficient of variation
Standard Deviation
Expected value
All of the above

Question 6
    "If a decision maker is risk averse, then the best strategy to select is the one that yields the"        
highest expected payoff
lowest coefficient of variation
highest expected utility
lowest standard deviation

Question 7
    Circumstances that influence the profitability of a decision are referred to as           
strategies
payoff matrix
states of nature
marginal utility of money

Question 8
    "If the production possibilities frontier is not bowed out but is a line, indicates there is"        
Scarcity
Constant opportunity cost    
Unemployment
Increasing Opportunity Cost

Question 9
    What is the least amount of money you would have to value seeing Kwan in order for you to choose the holiday on Ice Show?            
$0
$7
$38
$48,olk

Question 10
    Basic concept used under this study is:            
Marginalism
Opportunity Cost
Incremental Cost
None of the above

BLOCK 2 CASE STUDY  

1. If firm A cheats on the cartel and firm B complies with the agreement, Firm A's profit is”
 
$ 3 million
$ 2 million
Zero
(-) $ 1 million

Question 2 
"If firm A cheats on the cartel and firm B complies with the agreement, firm B's profit is”
 
$ 3 million 
$ 2 million 
Zero
(-) $ 1 million

Question 3 
"If this game is played only once,”
 
both firms A and B will cheat 
Firm A will cheat and Firm B will not cheat 
Firm A will not cheat and Firm B will cheat 
neither Firm A nor Firm B will cheat
Question 4 
The equilibrium in the previous question is called 
 
Credible strategy equilibrium
Nash Equilibrium
Duopoly Equilibrium
Cooperative equilibrium

Question 5 
If this game is played repeatedly and both firms adopt trigger strategies so that the cooperative equilibrium emerges
 
both firms A and B will cheat 
Firm A will cheat and Firm B will not cheat
Firm A will not cheat and Firm B will cheat
neither Firm A nor Firm B will cheat

Question 6 
Which one of the following is a part of every game theory model?
 
Players
Payoffs
Probabilities
Strategies

Question 7 
"In game theory, a choice that is optimal for a firm no matter what its competitors do is referred to as"
dominant strategy
game-winning choice
Super optimal
a gonzo selection

Question 8 
A prisoners' dilemma is a game with all of the following characteristics except one. Which one is present in a prisoners' dilemma?
 
Players cooperate in arriving at their strategies.
Both players have a dominant strategy. 
Both players would be better off if neither chose their dominant strategy. 
The payoff from a strategy depends on the choice made by the other player. 

Question 9 
"Which of the following legal restrictions, if enforced effectively, would be likely to solve a prisoners' dilemma type of problem for the firms involved?"
 
A law that prevents a cartel from enforcing rules against cheating.
A law that makes it illegal for oligopolists to engage in collusion. 
A law that prohibits firms in an industry from advertising their services.
All of the above would be likely to solve a prisoners' dilemma for the firms.

Question 10 
"Until recently, medical doctors and lawyers have been prohibited from engaging in competitive advertising. If the prisoners' dilemma applies to this situation, then the presence of this restriction would be likely to"
 
increase profits earned by individuals in these professions.
reduce profits earned by individuals in these professions.
have no effect on the profits earned by individuals in these professions.
increase the profits of some and reduce the profits of other individuals in these professions. 

BLOCK 3 CASE STUDY

Question 1
Market - clearing price and qunatity using simultaneous equations will be:
"P = 4, Q = 6"
"P = 3, Q = 2"
"P = 6, Q= 4"
"P = 5, Q = 16"
 
Question 2
Suppose P = 7. Calculate the ecess. Is it a shortage or surplus?
"8, Surplus"
"10, Surplus"
"8, shortage"
"10, shortage"
 
Question 3
Suppose P = 2. Calculate the ecess. Is it a shortage or surplus.
"6, surplus"
"15, shortage"
"15, surplus"
"6, shortage"
 
Question 4
"If price falls from $250 to $200, what is the elasticity of demand over this range?"
•    -0.08 
•    -1.5 
•    -1 
•    -0.67 
 
Question 5
"As output increases from 2,100 to 2,700 what is marginal revenue?"
(-) $ 25 
25 
50 
(-) $300 
 
Question 6
"If price falls from $250 to $200,"
an arrow representing the price effect points down and is longer than an arrow for the quantity effect
arrows representing the price and quantity effects both point up 
arrows representing the price and quantity effects both point down 
an arrow representing the price effect points down and is shorter than an arrow for the quantity effect
 
Question 7
If price falls from $200 to $150
an arrow representing the price effect points down and is shorter than an arrow for the quantity effect
total revenue moves in the same direction as the arrow representing the quantity effect
total revenue moves in the same direction as the arrow representing the price effect
arrows representing the price and quantity effects both point down 
 
Question 8
"If the own-price elasticity of demand for a good is -0.6 and quantity demanded decreases by 30%, price must have"
decreased by 0.6% 
decreased by 18% 
increased by 50% 
increased by 20% 
 
Question 9
Which of the following would tend to DECREASE the elasticity of demand for good X?
Consumers begin spending a smaller percentage of their income on X 
New substitutes for X become available from other firms 
The cost of producing X declines 
both b and c 
 
Question 10
Which of the following would tend to INCREASE the elasticity of demand for good X?
a new discovery allows firms to produce X at a much lower cost. 
both b and c 
"a new product, Y, which can be used in place of X, is introduced"
the percentage of a consumer's income spent on good X increases.

BLOCK 4 CASE STUDY

QUESTION 1

Calculate marginal product of each workers.
        
"6,5,4,3,2,1"
"5,4,3,2,1"
"0,1,2,3,4,5"
"7,6,5,4,3,2"

QUESTION 2

Calculate the marginal cost of each level of output
        
"10, 13.5 , 17.67, 30, 55"
"48, 13, 12, 10.9, 3, 1"
"10, 15.5, 20.25, 40, 60"
"10, 12.5, 16.67, 25, 50"

QUESTION 3

"If all resources used in the production of a product are increased by 20 percent and output increases by 20 percent, then there must be:”
        
economies of scale
diseconomies of scale
constant returns to scale.
increasing average total costs

QUESTION 4

"If the output levels at which short-run marginal and average cost curves reach a minimum are listed in order from smallest to greatest, then the order would be"
        
"AVC, MC, ATC "
"ATC, AVC, MC"
" MC, AVC, ATC"
"AVC, ATC, MC"

QUESTION 5

"If an input is owned and used by a firm, then its"
        
explicit cost is zero
implicit cost is zero
opportunity cost is zero
economic cost is zero

QUESTION 6

Short - run marginal cost is:
the change in total cost divided by the change in output
the change in total variable cost divided by the change in output
the cost per unit of the variable input divided by the marginal product of the variable input
all of the above

QUESTION 7

One reason that a firm may experience increasing returns to scale is that greater levels of output make it possible for the firm to
        
employ more specialized machinery
obtain bulk purchase discounts
employ a greater division of labor
All of the above are correct

QUESTION 8
Breakeven analysis identifies the
profit-maximizing level of output
level of output where economic profit is equal to zero
level of output where marginal revenue is equal to marginal cost
All of the above are correct

QUESTION 9
The responsiveness or sensitivity of a firm's profits to changes in output is measured by a firm's
operating leverage
contribution margin per unit
degree of operating leverage
returns to scale

QUESTION 10
"If a linear short-run variable cost function is estimated using cross-sectional data, then the corresponding marginal cost function will be"
U-shaped
Upward sloping
Downward Sloping
Horizontal

5th case study

1. A cause of inflation
Increase in money supply
increase in money supply and a fall in production
Fall in production
decrease in money supply and fall in production

QUESTION 2
Inflation brings more benefit to which one of the following?
•    Government pensioners
•    Creditors
•    Savings Bank Account Holders
•    Debtors

QUESTION 3
Inflation is mostly harmful to which one of the following?
•    Debtors
•    Creditors
•    Business class
•    Holder of real assets

QUESTION 4
Increasing unemployment and inflation is a situation of:    
•    Hyperinflation
•    Galloping inflation
•    Stagflation
•    Reflation

QUESTION 5
Who among the following are not protected against inflation?
•    Salaried class
•    Industrial workers
•    Pensioners
•    Agricultural farmers

QUESTION 6
"The period of high inflation, low economic growth and high unemployment rate is termed as:”
•    Stagnation
•    Take - off stage in economy
•    Stagflation
•    None of the above

QUESTION 7
"Deficit financing aims to put more money into the economy by creating additional paper currency to fill the gap between expenditure and revenue. The device aims at economic development but if it fails, it generates"
•    Inflation
•    Deflation
•    Devaluation
•    Demonitisation

QUESTION 8
A steady increase in the general level of prices as a result the aggregate demand is increasing in unsustainable rate as compared to aggregate supply is termed as
•    Demand - pull inflation
•    Cost push inflation
•    Stagflation
•    Structural Inflation

QUESTION 9
Which is correct in respect to inflation?
•    rise in budget deficits
•    rise in money supply
•    rise in general price index
•    rise in price of consumer goods

QUESTION 10
Which of the following is not a reason for inflation?
•    Increase in administered prices
•    Increase in cost of capital
•    More dependence on indirect taxes for revenue
•    None of these

Full Syllabus Assessment

Scenario - 2    
Calculate from the following data:    
    
Factor income from NDP accruing to private sector     300
Income from entrepreneurship and property     
Accruing to govt administrative departmental     70
 Savings of non-departmental enterprises     60
Factor income from abroad     20
 Consumption of fixed capital     35
 Current transfer from rest of the world     15
 Corporation taxes    25
Factor income to abroad     30
Current transfer from govt governmental admi depart     40
Direct taxes paid by house hold     20
National dept interest     5
Saving of private corporate sector     80

Question 1
The revenue earned at Downtown Bakery is equal to
area A+ B
area B
area A
area C
 
Question 2
Area A is bigger than area C. This means that  
The quantity demanded of chocolate cake exceeds the quantity supplied 
Demand for chocolate cake is price inelastic
Demand for chocolate cake is highly price elastic
The quantity supplied of chocolate cake exceeds the quantity demanded.
  
Question 3
Which of the following statements is true?
Elasticity is identical to the slope of the demand curve.
"A single, straight-line demand curve can be elastic in one region and inelastic in another"
Perfectly inelastic demand can be represented by a horizontal line
"When demand is unit elastic, revenue is strongly affected by price changes."
 
Question 4
Suppose a 50% increase in the price of a drug results in no change in the quantity demanded. What is the price elasticity of the drug?   
0   
0.05
0.5   
1

Question 5
Which one of the following goods is most likely to have a perfectly elastic demand?  
Shoes
Rice in a developing country
a particular brand of butter
Cigrattes 
 
Question 6
"A population subsists largely on potatoes, plus small amounts of dairy products and vegetables. The price of potatoes rises, driving many poor families deeper into poverty. As a result, these families are forced to eliminate dairy products and vegetables from their daily diet and start eating even more potatoes than they did before. In this example potatoes are"
inferior goods
normal goods
both b and c
Giffen goods
  
Question 7
Calculate private income
325 crores
350 crores
390 crores
355 crores
 
Question 8
Calculate national income
460 crores
280 crores
245 crores
660 crores
 
Question 9
Calculate personal disposable income
225 crores
315 crores
320 crores
305 crores

Question 10
The financial year in India is
April 1 to March 31
March 16 to March 15
January 1 to December 31
March 1 to April 31
 
Corse summary 

Live Interactive Session Test

1. What is Scarcity?
   
Relationship between limited resources and unlimited wants
Relationship between limited wants and limited resources
Relationship between unlimited resources and limited wants
None of the above

Question 2
Investment problems lead to:
   
How much to expand a firm
How much to invest
In which to invest
All of the above
  
Question 3
Indifference is
   
Concave to the origin
Convex to the origin
Horizontal parallel to x-axis
None of the above
 
Question 4
MRTS is equal to ratio of commodity prices which known as
   
Consumer equilibrium
Indifference curve
Consumer surplus
Demand Elasticity 
 
Question 5
Budget Constraint refers to
  
Combination of goods a consumer can purchase with income as a constraint
Combination of only two goods a consumer can purchase with income as a constraint
Combination of goods and services a consumer can purchase with income as a constraint
None of the above 
 
Question 6
Total fixed costs remain ________ as output increases
   
Constant
upward sloping
downward sloping
None of the above
 
Question 7
"In second stage of production, TP increases but _____ than proportionate to increase in labor"
   
More
Less
Equal
None of the above

Question 8
Price discrimination in which seller charges different prices for different classes for buyers is classified as
   
fourth-degree discrimination
second-degree price discrimination
first-degree price discrimination
third-degree discrimination
 
Question 9
"Image pricing, location pricing, channel pricing and time pricing are all types of price discrimination of"
   
First degree
Second degree
Third degree
Fourth degree

Question 10
"Price discrimination in which seller charges less to customer's, who buy in large volumes is classified as"
   
First degree
Second degree
Third degree
Fourth degree

Question 11
Scarcity implies that the allocation scheme chosen by society can
   
Not make more of any one good
Typically make more of a good but at the expense of making less of another   
Always make more of all goods simultaneously
None of the above

Question 12
The short run is a time period in which:
   
all resources are fixed
the level of output is fixed
the size of the production plant is variable.
some resources are fixed and others are variable.
  
Question 13
Variable costs are:
   
sunk costs.
multiplied by fixed costs.
costs that change with the level of production   
defined as the change in total cost resulting from the production of an additional unit of output
 
Question 14
When marginal product reaches its maximum, what can be said of total product?
   
total product must be at its maximum
total product starts to decline even if marginal product is positive
total product is increasing if marginal product is still positive
total product levels off 
 
Question 15
The marginal product of labor curve shows the change in total product resulting from a:
  
one-unit increase in the quantity of a particular resource used, letting other resources vary. 
one-unit increase in the quantity of a particular resource used, holding constant other resources. 
change in the cost of a variable resource. 
change in the cost of a fixed resource.