Model Question Paper

MANIPAL ACADEMY OF HIGHER EDUCATION

Directorate of Online Education
FIRST SEMESTER MBA (Online)/ M. Sc Business Analytics (Online)/
PGC Business Analytics (online) EXAMINATION
COURSE: Managerial Economics
Time: 150 minutes / 2 hours 30 minutes Max. Marks: 70

*Detailed instructions on “Proctored Online Examination” will be provided before the Mock examination.

Instructions to Candidates:
• The question paper consists of MCQ (objective) and DESCRIPTIVE questions
• Part A: MCQ Questions
o There will be 15 questions of 2 marks each and you must answer all the questions.
o For each question, there are four alternative choices. One of them is the correct answer.
• Part B: Descriptive Questions
o There will be 10 questions of 5 marks each and you must answer ONLY 8 questions.
o Each Answer should be approximately 200-250 words.

PART-A (Multiple Choice Questions)

(2 marks × 15 = 30 marks)

1. For commodities such as tooth paste, soaps and talcum powder, the demand tends to be
elastic. Which determinant of price elasticity best describes this?
A. Existence of substitutes
B. Number of uses for the commodity
C. Durability of the commodity
D. Nature of the commodity

2. When cost is expressed in terms of physical or mental efforts put in by a person in the making
of a product, it is called as:
A. Future cost
B. Implicit cost
C. Opportunity cost
D. Real cost
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3. Which model helps in predicting the reasonable behaviour of a firm with more accuracy?
A. Basic objective of traditional economic theory
B. Firm is not a charitable institution
C. Necessary for survival
D. Most realistic prediction of price-output behaviour

4. Deflator cannot be calculated for

A. Gross Domestic Product
B. Green National Product
C. Net Domestic Product
D. Net National Product

15. Consumption function refers to

A. Different amounts of consumption at same level of income.

B. Same amount of consumption at same level of income.
C. Different amounts of consumption at different levels of income.
D. Same amount of consumption at different levels of income.
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PART-B –Descriptive questions

Answer any 8 questions out of 10 questions

(5 marks × 8 = 40 marks)

1. It is observed that when the price of X is $ 10/unit, the demand for Y is 750 units. When the price
of X became $ 8/ unit, there was a rise in demand for Y by 50 units.
a. What type of elasticity is being discussed here?
b. What is relationship between the two commodities?
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10. What is perfect competition? Explain any five features of perfect competition.
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Model Answer of Descriptive Q.no.1

a. Cross-price elasticity of demand is discussed.

Px0 = $ 10 QDy0 = 750 units

Px1 = $ 8 QDy1 = 800 units

%change in Price = (8 – 10)/10 *100 = 20%

Since the price variation is more than 10% ARC elasticity formula must be used.

Price elasticity yx = [(Qy1 – Qy0)/(Px1-Px0)] * [(Px1 + Px0)/(Qy1 + Qy0)]

= [(800 – 750)/(8 - 10)] * [(8 + 10)/(800 + 750)]

= -25 * 0.012 = -0.29

b. Since the PEyx < 0, both are complements.

Model Answer of Descriptive Q.no.10

Perfect competition is a unique form of the marketplace that allows multiple companies to sell the same
product or service. Many consumers are looking to purchase those products. None of these firms can set a price
for the product or service they are selling without losing business to other competitors. There are no barriers
to any firm that is looking to enter or exit the market. The final output from all sellers is so similar that
consumers cannot differentiate the product or service of one company from its competitors.

Features of Perfect Competition (Explain only five features of perfect competition)

The main features of perfect competition are as follows:

• Many Buyers and Sellers – There will always be a huge number of buyers and sellers in this form of
marketplace. The advantage of having many small-sized producers is that they cannot combine to
influence the market price. If the quantity offered by an individual seller is very small compared to the
total market produce, they cannot influence the market price independently.

• Homogeneity – The product or service produced by the buyers in a perfectly competitive market should
be homogenous in all respects. There should be no differentiation between them in terms of quantity,
size, taste, etc., so that the products are perfect substitutes for each other. If a seller tries to charge a
higher price for products that are so similar, they will lose their customers immediately.

• Free Entry and Exit – Another condition of a perfectly competitive market is that no artificial restrictions
prevent a firm’s entry or compel an existing firm to stay put when they want to leave. Their decision to
enter, stay or leave the market depends purely on economic factors.
• Perfect Knowledge – The buyers and sellers have perfect knowledge about the market conditions. The
buyers are aware of the details of the product sold as well as its price. At the same time, the sellers
know about the potential sales of their products at different price points. Since the buyers are already
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informed about the product, there is no need for advertising or sales promotion. So firms don’t have to
invest a single penny in these activities. It also helps sellers save on advertising or other marketing
activities, which keeps the price of their products low.

• Mobility of Factors of Production – The factors of production like labour, raw materials and capital
should have total mobility under perfect competition. The labour should have the freedom to move
from one place (industry, market, or production unit) to another depending on their remuneration.
Even the raw materials and capital should not have any restrictions in movement.
• Transport Cost – In the perfectly competitive market, the costs for transporting goods, services or
factors of production from one place to another is either zero or constant for all sellers. The assumption
is that all sellers are equally near or farther away from the market. Thus, the transport cost is uniform
for all of them. The result is that the overall costs for production and the selling price are the same
across the board.
• Absence of Artificial Restrictions – There is no interference from the government or any other
regulatory body to hinder the smooth functioning of the perfect competition. There are no controls or
restrictions over the supply or pricing and the price can change solely based on the demand and supply
conditions.

• Uniform Price – There is a single uniform price for all products and services in a perfectly competitive
market. The forces of demand and supply determine it.

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