Questions and Answers of Fundamentals of Managerial Economics

Appreciate the importance of considering time value of money in project evaluation.
Comprehend the methods of project evaluation for judicious decision-making.
Understand the importance of project evaluation in achieving a firm’s objectives.
Identify various types of projects which an organisation has to undertake.
Develop an understanding of technical progress and its nuances.
Introduce the concepts of isoquant, isocost line, marginal rate of technical substitution, elasticity of substitution and expansion path.
Build up a critical appraisal of the law of variable proportions and returns to scale.
Develop an understanding of the distinction between short run and long run production functions.
Examine the economic analysis of a firm’s technology, different types of inputs and the process of production.
Comprehend the concepts of revenue, economies of scale, economies of scope, break-even analysis and learning curve.
Build an understanding of estimation of cost functions.
Analyse the importance of matching costs with relevant time frames and to understand the short and long run costs.
Explain different types of costs, with focus on the difference between economic and accounting philosophies.
Understand the meaning of cost in economic analysis and its relevance in managerial decision-making.
Point out the limitations of demand forecasting.
Understand quantitative and econometric methods of demand forecasting.
Explore qualitative techniques of forecasting demand.
Understand the types of demand forecasting.
Introduce the relevance of demand forecasting in business.
Explain the relevance and application of elasticities of demand.
Learn how to measure elasticity by various methods.
Discuss various degrees of elasticities of demand and supply.
List the degrees of responsiveness of demand.
Understand the meaning of responsiveness of demand to changes in determinants of demand.
Introduce the concepts of market equilibrium and disequilibrium.
Develop an understanding of demand and supply functions in determining market equilibrium.
Analyse the different determinants of demand and supply and their effects on demand and supply curves.
Explain the law of demand and exceptions to the law.
Introduce the basics of demand and supply and their relevance in economic decision-making.
Illustrate the concept of consumer surplus and its application in decision-making.
Discuss how consumer equilibrium is attained subject to budget constraint.
Find the difference between cardinal and ordinal utility analyses of consumer behaviour.
Explain the nuances of utility analysis, marginal utility, total utility and law of diminishing marginal utility.
Introduce the crux of consumer behaviour, choices and preferences.
Comprehend the nuances of concepts like principal agent problem and asymmetric information in an organisational context.
Understand various objectives of a firm and develop a critical appraisal of the various theories of objectives of a firm.
Discuss the role of public sector in economy.
Identify the various types of organisations on the basis of ownership pattern and highlight the advantages and limitations of each type.
Discuss the scope of managerial economics and its relationship with various other disciplines and functional areas.
Explain the concept of managerial economics and demonstrate its importance in managerial decision-making.
Analyse how decisions are made about what, how and for whom to produce.
Know the basic difference between microeconomics and macroeconomics.
Introduce key economic concepts like scarcity, rationality, equilibrium, time perspective and opportunity cost.
“Although India and China have different economic political systems yet they are equally affected by the US recession”. Discuss.
Is it right to say that business cycle is a monetary phenomenon? Answer with special reference to the Hicksian model of trade cycles.
Critically analyse the theories of trade cycles by Keynes and Hicks. Which one of the two appeals to you in terms of real-life relevance?
How does a phase of expansion lead to recession?
Compare preventive measures and corrective measures against trade cycles.
How does the real business cycle theory establish linkages between business cycles and rational expectations?
Compare and contrast the effects of expansion and recession on selected variables like output and employment.
Why is it better to keep a check on business cycles? Is it feasible, keeping in view their obvious and inevitable occurrence?
Elaborate the components of balance of payments. What is the difference between balance of payments and balance of trade?
What do you understand by the following information? Explain on basis of relationship between these measures of national income:i. GNP is `28, 33,558 crore and NNP is `25, 01,067 crore.ii. GDP at
The following table provides data on employment under various sectors excluding agriculture and unorganised sector. Try to interpret the data with logic. Search for similar data on agriculture and
The following information has been obtained from the national income accounts of India.Find out: (i) Net National Product at market price and (ii) Disposable Income, for each year under reporting.
No method of national income accounting is perfect. Critically evaluate different methods of national income accounting in the context of this statement.
What is meant by the three identities of national output, national income and national expenditure?
“Real measure of national income is NNP, and not GDP.” Do you agree with this statement? Give arguments in support of your point of view.
“National income does not necessarily refer to income produced within the borders of a country”.In the context of this statement, explain the difference between GNP and GDP.
Suppose the market demand for a product is p(Q) = 60 – Q = 60 – b(q1 + q2), where q1 and q2 are the quantities supplied by the two firms in the market. The cost function is C(q).i. Find the
The demand for good 1 is given by q1 = 20 – p1 +1 2p2. The demand for good 2 is given by q2 = 20 – p2 +1 2p1. Find the Bertrand Nash equilibrium with the help of a diagram.
Suppose we consider a symmetric duopoly where each firm has a unit cost of c =
Let us consider a market entry game. Suppose, a firm like Tata tries to introduce a new small car, where Maruti currently is the only provider of small cars. In the game, Tata can enter or not enter
Suppose there are two ice cream producers and each firm can produce a high as well as a low quality product. The payoff matrix which indicates the profits for the two firms is given as:i. What is the
Suppose a game is similar to the game in question 12, except that when the firm provides a low quality service and the customer buys it, then the firm has a payoff of 1 (instead of 4) and the
If the firm provides a low quality service and the customer buys it, then the firm has a payoff of 4 and the customer has a payoff of zero. But if the firm provides a low quality service and the
If the firm provides a high quality service and the customer does not buy it, then the firm’s payoff is zero and the customer’s payoff is
Suppose there are two players. Player 1 is an internet service provider and player 2 is a potential customer. The internet service provider has to decide between two levels of quality of service,
‘Prisoner’s dilemma leads to a suboptimal equilibrium.’ Explain.
What is the “first mover advantage”? Discuss this in connection with the Stackelberg model.
Consider Prisoner’s Dilemma. Are the convicts risk averse or risk lovers? Is it a dominant strategy game? Give arguments in support of your answer.
What if cartels were not illegal? Comment.
Imagine two cola majors Simply Cola and Only Cola are vying for greater market share in Mumbai. They have roped in two celebrities as their brand ambassadors and are planning to advertise their
Can we apply game theory to explain the behaviour of firms in perfect competition or monopoly or monopolistic competition? Give logic to support your answer.
‘The distinction between risk and uncertainty is uncalled for.’ Comment.
Explain how can we arrive at Nash equilibrium in a game of incomplete information like Prisoner’s Dilemma?
Explain the relevance of game theory in an oligopolistic market.
Establish a relationship between Cournot equilibrium and Nash equilibrium.
Give examples from the business world of each of a constant sum game, zero sum game, and a non-zero sum game.
Assume a consumer’s income is `5000; she has to buy pens at `5 each and pencils at `1 each.i. Formulate the equation of budget line for this consumer that would indicate the amount of income spent
Consider the following utility functions with commodities x1 and x2 and determine the absolute value of MRS of each:i. U(x1, x2) = x1x2 2ii. U(x1, x2) = a2logx1 + b2logx2
“A budget line is nothing but demand curve of the consumer expressed in terms of two goods given the money income and prices of these two commodities”. Explain.
With the help of suitable diagrams, explain all the features of indifference curves.
Explain that in a two goods combination a consumer would sacrifice successively less of one commodity for getting more of another commodity.
How can you decide on distribution of your income on various goods that you wish to purchase in a month? (Hint: use equimarginal utility principle)
Is it possible to explain consumer’s behaviour without taking help of the assumptions of completeness, transitivity and non-satiation?
‘Choice reveals preference!’ Do you agree with this statement? Illustrate your arguments with help of an example and suitable diagrams.
Suppose you are a purely vegetarian consumer. Can you draw your indifference curve for a nonvegetarian food item? Explain.
Would you consider theory of revealed preferences to be superior to cardinal and ordinal theories of utility? Defend your answer with logic.
Which one between cardinal and ordinal theories of utility seems to be more realistic to you? Why?
Consider the following examples and comment on them:i. Five persons want to start a software company. What is the most suitable form of organisation for them and why?ii. A person who owned a small
You have been recently promoted as general manager sales of a multinational company producing various consumer goods. As part of your responsibilities you have been given a target of increasing
How can managers (agents) be better off than owners (principals) by having more knowledge than the latter?
We have discussed some solutions to the principal agent problem in an organisational set up.Which one among these, according to you, bears the maximum amount of risk? Why?
Consider the Public Sector in India. Project all the theories on objectives of a firm on any PSE.Which one fits the best? Why? Which is the most unfit? Why?
On a critical note, which one among the theories on objectives of a firm do you think is the most relevant in present business scenario in India?
Discuss the three constraints discussed in Marris’ theory and their role in achieving growth maximisation.
Relate the principal agent problem with Williamson’s theory of Maximisation of Managerial Utility function.
Discuss the advantages and limitations of forming a joint stock company.
Search for a public sector unit and another in the private sector in the same industry, and discuss the difference in their performances.

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