USN
PESIT Bangalore South Campus
Hosur road, 1km before Electronic City, Bengaluru -100
Department of MBA
INTERNAL ASSESSMENT TEST –1
Date: 14-11-2016
Subject & Code: Economics For Managers -16MBA12
Name of faculty: Dr. Swati Bandi
Max Marks: 40
Section: I Sem (core)
Time: 11:30-1:00 PM
Note: Answer all questions
1 (a)
List three exceptions to law of demand?
(2 marks)
a) Expectations of further price rise in future.
b) Status goods.
c) Giffen goods.
(b)
Explain Baumol’s model of sale revenue maximisation with criticism.
Ans. Baumol’s has postulated maximation of sales revenue as an alternative to
profit maximation objective.
1. A firm attaches great importance to the magnitude of sales and is much
concerned about declining sales.
2. If the sales of a firm are declining, banks, creditors and the capital market are
not prepared to provide finance to it.
3. Its own distributors and dealers might stop taking interest in it.
4. Consumers might not buy its product because of its unpopularity.
5. Firm reduces its managerial and other staff with fall in sales.
If firm’s sales are large, there are economies of scale, the firm expands and
earns large profits.
7. Salaries of workers and management also depend to a large extent on more
sales and the firm gives them bonus and other facilities.
MBA I SEMESTER
(6 marks)
By sales maximisation, Baumol means maximisation of total revenue. It does not
imply the sale of large quantities of output, but refers to the increase in money
sales (in rupee, dollar, etc.).
Criticism of Baumol’s theory:
a) No distinction between firm’s equillibrium and industry equillibrium
b) In the long run Baumol’s theory and conventional hypothesis will yield
identical results
c) No difference from the social welfare point of view.
d) Does not bring out interdependence of firm’s price and output decision.
(c)
Discuss the elasticity of demand and various types of elasticity of demand?
(8 marks)
Ans. Elasticity of demand is the degree of responsiveness of demand to the
change in its determinants.
Four types of elasticity of demands are as follows: (has to explained with detail
with formulas and graphs)
a)
b)
c)
d)
2 (a)
Price Elasticity
Income Elasticity
Cross Elasticity
Advertisment Elasticity.
What is Iso Quant curve?
(2 marks)
Ans. An isoquant is a firm’s counterpart of the consumer’s indifference curve. An
isoquant is a curve that shows all the combinations of inputs that yield the same
level of output. ‘Iso’ means equal and ‘quant’ means quantity. Therefore, an
isoquant represents a constant quantity of output. The isoquant curve is also
known as an “Equal Product Curve” or “Production Indifference Curve” or IsoProduct Curve.”
(b)
What is Law of Variable proportion, and also discuss the various stages of
production.
Ans- During the short period, under a given state of technology and other
conditions remaining unchanged, with the given fixed factors, when the units of
a variable factor are increased in the production function in order to increase
MBA I SEMESTER
(6 marks)
the total product, the total product may initially rise at an increasing rate and,
after a point, it tends to increase at a decreasing rate because the marginal
product of the variable factor in the beginning may tend to rise but eventually
tends to diminish.
(c)
(8marks)
Suppose a production function is given as:
“Q= 10L+15L2 –L3”
a) Derive MP and AP schedule.
b) Find the output at which AP = MP.
C) Find L for producing 600 units of output.
No. of labour
1
2
3
4
5
6
7
8
9
10
11
12
MBA I SEMESTER
TP
24
72
138
216
300
384
462
528
576
600
594
552
MP
24
48
66
78
84
84
78
66
48
24
-6
-42
AP
24
36
46
54
60
64
66
66
64
60
54
46
Stages
I Stage
II Stage
III Stage
AT the eight labour the AP=MP
And at the tenth labour the production reaches to 600 units of output.
3
The Following figures relate to one year working at 100% capacity level in a
manufacturing Business:
Fixed Overhead
: Rs. 1,20,000
Variable Overhead : Rs. 2,00,000
Direct Wages
: Rs. 1,50,000
Direct Material
: Rs. 4,10,000
Sales
: Rs. 10,00,000
Represent the above figures on Break even chart and determie break even point
from the chart.
And verify your results by the calculations.
Ans. Had to draw the schedule as well the BEP chart and Break Even Point is at
Rs.5,00,000
********
MBA I SEMESTER
(8 marks)