MBA (EX) – November/December 2020
MBAEX - 8103 Managerial Economics
Time: 3 hours Max. Marks: 70
Instructions
This is an open book exam. You are free to read materials available online and offline. What
you are not free to do are these: 1. Not consult another person (friends, family, teacher, etc),
2. Copy and paste materials from online/offline sources
Even if you have written the correct final answer, you will get a score of zero if 1. you give an
answer without showing your work, or 2. your answer does not match your work, or 3. your
answers looks exactly like someone else’s answer or materials published offline/online..
To get a non-zero score, solve the paper yourself. Explain using your own words and show
all your work to get full points.
Answer All The Questions
1. Dart Moving Company Pvt Limited has estimated that the demand for its services is
given by Qd = 1,000 - 0.2 P + 0.5 Py + 0.04 Y + 0.01 A, where Qd is the quantity
demanded at price P, Py is the price of providing the service by a group of specialized
workers, Y is consumer income and A is the advertising expenditure of the firm.
Currently we have the following data, P = 100, Py = 120, Y = 10,000 and A = 6,000.
a. Calculate the price elasticity of demand at the given point. Should Dart Moving
Company consider matching their price, P to Py to increases total revenue?
Explain your answer using appropriate graphs.
b. Also calculate the advertising elasticity of demand. How can Dart Moving
Company use this information to decide on advertising expenditure? Explain. Is it
likely that advertising expenditure can impact the cross price elasticity of
demand? Explain.
(7+7 marks)
2. Best Pens Limited is one of the many firms operating in a competitive market. The
cost function is given by TC(q) = 50q – 10 q2 + q3, where q is the number of units
produced. Best Pens is a profit maximizing firm with no capacity constraint and uses
two inputs capital (K) and labour (L) to maximize profit.
a. Discuss how did the manager arrive at the above cost function. Discuss the
process with appropriate graphs. You do not have to show it numerically.
b. What is the value of output at which AVC is minimized? Find the long-run price
that will prevail in this industry. Give a numerical answer. Explain how you
obtained the price using appropriate graphs.
(7+7 marks)
3. Explain the concept of technological progress using the idea of production function.
Using a production function that uses two inputs, capital (K) and labour (L), explain
the concept of Returns to Scale for a production function given by Q = f(K,L). How is
the concept of Returns to Scale related to the Marginal Returns to Capital? Does one
imply the other? Explain. What is the Returns to Scale for the following production
function: Q = 1000K2/L.
(7+7 marks)
4. Comment on the following statements and explain your answers. Use graphs
wherever appropriate.
a. The Tatkal facility for reservation offered by Indian Railways is an example of
what kind of price discrimination? Explain. Is this kind of price discrimination
better for the purpose of efficiency than no price discrimination at all? Explain.
b. What kind of market structure is applicable for Premium and Luxury Hotel
segment? What are the features of the market that should be looked at to answer
this question? Discuss.
(7+7 marks)
5. Suppose there is a sudden demand shift in favour of chocolates. At the same time,
there is acute shortage of cocoa all over the world. Assume that most of the cocoa
used by domestic producers come from foreign markets.
a. Using a demand and supply framework explain how these shocks will change the
equilibrium price and quantity in the domestic market. Use appropriate graphs.
b. The Government wants to encourage domestic production of cocoa and decides to
tax the imported cocoa by charging a certain tax for each unit of cocoa sold. What
kind of impact this policy will have on quantity and prices in the short-run? Use
the concepts of consumer and producer surplus to answer this part. What are some
of the likely non-economic outcomes in the short-run? What do you think will
happen in the long-run, including whether this is going to result in more domestic
cocoa production? Explain.
(7+7 marks)
