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Posted By: Kenny Member Level: Gold Posted Date: 22 May 2008
|
2005 ICFAI University M.B.A Economics (MB141) : January 2005 Question paper
1
Question Paper
Economics (MB141) : January 2005
• Answer all questions.
• Marks are indicated against each question.
1. The value of all the goods and services produced in an economy during a period of time and adjusted
for inflation is called
(a) Real GDP (b) Nominal GDP
(c) Real National income (d) Nominal national income
(e) Per capita income.
(1 mark)
< Answer >
2. The following information pertains to national income aggregates of a hypothetical economy:
Particulars Rs. crore
Old age pension, scholarships etc. distributed by Government 21
Purchases made by the government sector 246
Value of exports 22
Corporate tax 62
Personal savings 22
Personal income tax 94
Factor incomes received by the household sector 632
The personal disposable income in the economy is
(a) Rs.509 crore (b) Rs.539 crore (c) Rs.529 crore (d) Rs.559 crore (e) Rs.549 crore.
(2 marks)
< Answer >
3. On a day Rajesh, a stockbroker, collected Rs.20,000 towards his commission. Over the day, the value of
his office equipments depreciated by Rs.2,000. Of the remaining Rs.18,000, he paid Rs.1,000 to the
government as service tax; retained Rs.7,000 in his business and took home the remaining amount as
his wages. From his personal income, he paid Rs.3,000 as income tax. What was the contribution made
by Rajesh to national income ?
(a) Rs.18,000 (b) Rs.20,000 (c) Rs.7,000 (d) Rs.21,000 (e) Rs.17,000.
(2 marks)
< Answer >
4. The capital inflows and outflows in an economy during the year 2004-05 are 6,300 MUC and 4,500
MUC respectively. If there is no change in the official foreign reserve assets held by the central bank,
what could be the current account balance of the economy?
(a) 1,500 MUC (deficit) (b) 1,800 MUC (surplus)
(c) 1,800 MUC (deficit) (d) 1,500 MUC (surplus) (e) Zero.
(2 marks)
< Answer >
5. The following information is extracted from the National Income Accounts of an economy:
Particulars
Million
Units of
Currency
(MUC)
Factor income received by domestic residents from business sector 500
Factor income received by domestic residents from foreigners 20
Gross investment 200
Retained earnings 25
Net indirect taxes 60
Corporate profit taxes 15
Personal income taxes 100
Net factor income from abroad –5
Dividends 100
National Income (NI) of the economy is
< Answer >
2
(a) 560 MUC (b) 620 MUC (c) 640 MUC (d) 720 MUC (e) 810 MUC.
(2 marks)
6. Consider the following information:
GDP at factor cost = Rs.5,000 cr.
Net factor income from abroad = Rs.500 cr.
Indirect taxes = Rs.1,355 cr.
GNP at market prices = Rs.5,730 cr.
The subsidies amount to
(a) Rs.950 cr. (b) Rs.1,030 cr. (c) Rs.1,125 cr. (d) Rs.1,290 cr. (e) Rs.1,500 cr.
(2 marks)
< Answer >
7. In a two-sector economy, the marginal propensity to consume (MPC) is estimated to be 0.6. To bring
about a Rs.500 billion change in equilibrium national income (Y), the required increase in corporate
investment (I) is
(a) Rs.125 billion (b) Rs.200 billion (c) Rs.240 billion (d) Rs.300 billion (e) Rs.360
billion.
(2 marks)
< Answer >
8. The following information is given from the national accounts of a country for the year 2004-05.
Particulars MUC
Factor income earned within domestic territory 65,000
Gross domestic fixed capital formation 6,000
Net domestic fixed capital formation 4,000
GNP at market prices 85,000
Indirect taxes 3,000
Subsidies 1,000
The net factor income from abroad for the year 2004-05 is
(a) 15,000 MUC (b) 13,000 MUC (c) 16,000 MUC (d) 17,000 MUC (e) 11,000
MUC.
(2 marks)
< Answer >
9. The following data pertains to the national income aggregates of a hypothetical economy:
Consumption function (C) = 200 + 0.80 Yd, where Yd is disposable income
Investment (I) = 500 MUC
Government spending (G) = 200 MUC
Taxes (T) = 100 MUC
The equilibrium level of savings is
(a) 600 MUC (b) 700 MUC (c) 500 MUC (d) 800 MUC (e) 900 MUC.
(2 marks)
< Answer >
10. The ratio of the change in national product to the change in investment demand is called
(a) Marginal propensity to consume (b) Marginal propensity to save
(c) Average propensity to save (d) Multiplier
(e) Average propensity to consume.
(1 mark)
< Answer >
11. The following balances are taken from the balance sheet of the Central Bank of a country:
Particulars MUC
Net worth 400
Credit to Central Government 1,000
Credit to commercial banks 500
Other non-monetary liabilities 100
Other assets 200
Government deposits 100
Foreign exchange assets 200
< Answer >
3
If the government money in the economy is 100 MUC, the high powered money in the economy is
(a) 1,400 MUC (b) 1,500 MUC (c) 1,650 MUC (d) 1,600 MUC (e) 1,250 MUC.
(2 marks)
12. Which of the following schools of thought believes in an active government role in the macro
economy?
(a) Keynesian economics (b) Monetarism
(c) New classical economics (d) Classical economics
(e) Rational expectations.
(1 mark)
< Answer >
13. Which of the following is not one of the basic Postulates of the Keynesian Model?
(a) Full employment occurs only by coincidence in an economy
(b) Effective demand determines the level of employment and output
(c) Since full employment is not always possible, Government intervention is essential
(d) Budget deficit is a tool to fight recession
(e) Monetary policy is more effective than fiscal policy.
(1 mark)
< Answer >
14. Which of the following policy measures is/are fiscal policy measure(s)?
(a) The government cuts taxes or raises spending to get the economy out of a recession
(b) The central bank changes the money supply to affect the price level, interest rates and exchange
rates
(c) The government restricts imports and stimulates exports
(d) Both (a) and (b) above
(e) Both (a) and (c) above.
(1 mark)
< Answer >
15. Basic consumption function shows the relationship between
(a) Consumption and disposable income
(b) Consumption and expectations
(c) Consumption and price level
(d) Consumption and money supply
(e) Consumption and rate of interest.
(1 mark)
< Answer >
16. If the marginal propensity to consume (MPC) is 0.8 and the autonomous investment rises by Rs.100
crores, then the change in equilibrium output is
(a) Rs.125 crores (b) Rs.200 crores (c) Rs.300 crores
(d) Rs.325 crores (e) Rs.500 crores.
(1 mark)
< Answer >
17. The quantity theory of money implies that a given percentage change in the money supply will cause
(a) A smaller percentage change in nominal GDP
(b) An equal percentage change in nominal GDP
(c) A larger percentage change in nominal GDP
(d) An equal percentage change in real GDP
(e) A larger percentage change in real GDP.
(1 mark)
< Answer >
18. Which of the following is true if the RBI increases Cash Reserve Ratio (CRR)?
(a) Monetary liabilities of the RBI increases
(b) High powered money in the economy decreases
(c) The value of money multiplier decreases
(d) Aggregate demand in the economy increases
(e) Price level in the economy increases.
(1 mark)
< Answer >
4
19. An expansionary fiscal policy combined with a liberal monetary policy results in
I. A lower level of output.
II. A higher level of output.
III. A lower interest rate.
IV. A higher interest rate.
V. A lower or higher interest rate depending on the relative magnitude of fiscal and monetary
policies.
(a) (I) and (III) above
(b) (I) and (IV) above
(c) (II) and (III) above
(d) (II) and (V) above
(e) (I) and (V) above.
(1 mark)
< Answer >
20. Which of the following is true if the central bank does not impose any reserve ratio?
(a) The banking system can no longer affect the supply of money in the economy
(b) The banking sector can create unlimited money supply
(c) The lending capacity of banks would narrow down to zero
(d) A rupee deposited in a bank reduces the money supply in the economy by one rupee
(e) Money supply in the economy will be equivalent to the high-powered money.
(1 mark)
< Answer >
21. In the previous monetary policy, the RBI Governor reduced the CRR from 4.75 to 4.50%. Which of the
following sequences correctly show the impact of the reduction in CRR?
I. Change in money supply.
II. Change in nominal interest rates.
III. Change in consumption and investment.
IV. Change in aggregate demand.
V. Change in real GDP and price level.
(a) (I), (II), (III), (IV) and (V) above
(b) (I), (II), (III), (V) and (IV) above
(c) (I), (II), (IV), (V) and (III) above
(d) (I), (V), (II), (III) and (IV) above
(e) (I), (III), (II) (V) and (IV) above.
(1 mark)
< Answer >
22. Inflation caused by an increase in wages or other resource prices is termed as
(a) Demand pull inflation (b) Recession (c) Cost push inflation
(d) Deflation (e) Stagflation.
(1 mark)
< Answer >
23. If expected inflation is constant and the nominal interest rate increases, the real interest rate
(a) Increases by more than the change in the nominal interest rate
(b) Increases by the same amount as changes in the nominal interest rate
(c) Decreases by the same amount as changes in the nominal interest rate
(d) Decreases by more than the change in the nominal interest rate
(e) Remains constant.
(1 mark)
< Answer >
24. Which of the following is not an example of an automatic stabilizer?
(a) National defence spending
(b) Social welfare payments
(c) Unemployment compensation
(d) Personal income tax
(e) Corporate income tax.
(1 mark)
< Answer >
5
25. In an inflationary period, the appropriate policy for RBI will be to
(a) Sell government securities in the open market
(b) Encourage commercial banks to increase their loans
(c ) Reduce cash reserve ratio
(d) Reduce bank rate
(e) Extend credit to the government.
(1 mark)
< Answer >
26. The following information is available from the balance of payment statements of an economy:
Item MUC
Trade balance –5,000
Current account balance –2,000
Capital account balance 6,000
The foreign exchange reserves of the country will
(a) Decrease by 7,000 MUC (b) Increase by 7,000 MUC
(c) Decrease by 4,000 MUC (d) Increase by 4,000 MUC
(e) Decrease by 6,000 MUC.
(1 mark)
< Answer >
27. The following information is available from the consolidated balance sheet of the banking sector:
Item Rs. billion
Net Bank Credit to the Government 2,000
Bank Credit to the Commercial Sector 3,000
Net Foreign Exchange Assets of the Banking Sector 2,200
Net Non-Monetary Liabilities of the Banking Sector 1,200
Government Currency Liabilities to the Public 200
Money supply in the economy is
(a) Rs.200 billion (b) Rs.6,000 billion (c) Rs.6,200 billion
(d) Rs.7,400 billion (e) Rs.7,600 billion.
(1 mark)
< Answer >
28. The term ‘narrow money’ is
(a) Currency with the public
(b) Currency with the public plus currency with the Government of India
(c) Currency with the public plus Demand deposits of the Banking system plus other deposits with the
RBI
(d) Currency with the public plus Demand deposits of the banking system plus Post office savings
bank deposits
(e) Currency with the public plus Total post office deposits.
(1 mark)
< Answer >
29. If a scheduled bank meets its cash reserve requirement of 3% by depositing Rs 7.5 crore with the RBI,
then
(a) Total deposit liabilities of the bank are Rs.22.50 crore
(b) Total deposit liabilities of the bank are Rs.225.00 crore
(c) Total deposit liabilities of the bank are Rs.250.00 crore
(d) Total deposit liabilities of the bank are Rs.150.00 crore
(e) Total deposit liabilities of the bank are Rs.175.00 crore.
(1 mark)
< Answer >
30. In an economy, the currency with the public is Rs.4,200 crores and the bank reserves amount to
Rs.1,200 crores. The currency deposit ratio is 0.42 and the reserve ratio imposed by the bank is 0.12.
The amount of money supply in the economy is
(a) Rs.2,054 crores (b) Rs.11,045 crores
< Answer >
6
(c) Rs.2,300 crores (d) Rs.14,200 crores (e) Rs.3,400 crores.
(2 marks)
31. Assume that the RBI purchased Rs.500 cr. worth of government bonds from the general public. This
will
(a) Increase the banking system’s reserves, the monetary base and the system’s lending capacity
(b) Decrease the price of bonds in the market
(c) Decrease the bank reserves, the monetary base and the banking system’s lending capacity
(d) Limits the size of the money multiplier
(e) Both (b) and (c) above.
(1 mark)
< Answer >
32. A transaction involving short term capital outflow from UK to US will appear as
(a) A debit on the UK current account
(b) A debit on the UK capital account
(c) A credit on the UK current account
(d) A credit on the UK capital account
(e) Trade deficit on the UK current account.
(1 mark)
< Answer >
33. If the country called ‘Angelland’ enjoys a comparative advantage in the production of coffee over the
country called ‘Babel’, then
(a) The opportunity cost of producing coffee in Angelland is higher than in Babel
(b) The opportunity cost of producing coffee in Angelland is lower than in Babel
(c) Neither Angelland nor Babel should specialize in the production of coffee only
(d) Both the countries enjoy absolute advantage in the production of coffee
(e) The opportunity cost of producing coffee is same in Babel and Angelland.
(1 mark)
< Answer >
34. Phases of business cycles in an economy are designated primarily based on the
(a) Unemployment rate (b) Price level (c) Real GDP
(d) Inventory level (e) Gross investment.
(1 mark)
< Answer >
35. Robert begins his job search soon after his Post-graduation in Computer Science. After two months of
search, he is hired by a software company as a system administrator. The nature of unemployment
encountered by Robert is
(a) Structural (b) Frictional (c) Cyclical (d) Seasonal (e) Disguised.
(1 mark)
< Answer >
36. Suppose a drop in consumer confidence results in an economic contraction. In order to move the
economy out of recession,
I. Government spending could be increased
II. Taxes could be lowered
III. The money supply could be increased
IV. Interest rate could be reduced
(a) (I) above
(b) (I) and (II) above
(c) (II) and (III) above
(d) (II), (III) and (IV) above
(e) All (I), (II), (III) and (IV) above.
(1 mark)
< Answer >
37. The difference between M3 and M1 is
(a) Demand deposits (b) Post office savings deposits (c) Savings deposits
(d) Time deposits (e) M2.
(1 mark)
< Answer >
38. Which of the following is not an economic good?
(a) Gas cylinder (b) Mineral water (c) Air
(d) Teakwood (e) Videocassette.
< Answer >
7
(1 mark)
39. A rice miller can sell as much rice he wants at the prevailing market price. He knows that even if he
increases the price by a small proportion, he will lose the entire market. The slope of the demand curve
faced by the miller will be
(a) Infinity (b) Zero (c) One (d) Between zero and infinity
(e) Between one and infinity.
(1 mark)
< Answer >
40. All the major airlines have been experiencing declining sales revenues as fares are increased. From this
it can be inferred that
(a) The demand for air travel is relatively price elastic
(b) The demand for air travel is relatively inelastic
(c) Air travel is an inferior good
(d) The demand for air travel is perfectly inelastic
(e) The demand for air travel is unitary price elastic.
(1 mark)
< Answer >
41. Consumer expenditure data in South India revealed that gold ornaments are a luxury for them. The
income elasticity of demand for gold ornament in South India is
(a) Greater than one (b) Equal to one
(c) Zero (d) Grater than zero but less than one
(e) Less than zero.
(1 mark)
< Answer >
42. The magnitude of a decrease in the supply of oil in India due to supply shocks was found to be greater
than the magnitude of a decrease in the demand. Which among the following is a natural consequence
of this phenomenon?
(a) The equilibrium quantity and the price will decrease
(b) The equilibrium quantity and the price will increase
(c) The equilibrium quantity increases and the equilibrium price decreases
(d) The equilibrium quantity decreases and the equilibrium price increases
(e) The equilibrium price and quantity do not change.
(1 mark)
< Answer >
43. The demand equation Qd=100-20P indicates that there is
(a) 100 units increase in quantity demanded for every 20 units decrease in price
(b) 20 units increase in quantity demanded for every 100 units decrease in price
(c) 100 units decrease in quantity demanded for every 20 units increase in price
(d) 20 units decrease in quantity demanded for each unit increase in price
(e) 100 units increase in quantity demanded for each unit increase in price.
(1 mark)
< Answer >
44. Demand and supply functions of a product are:
Qd = 10,000 – 4P
Qs = 2,000 + 6P
If the government imposes a sales tax of Rs.100 per unit, the price will
(a) Increase by Rs.100 (b) Increase by Rs.50 (c) Increase by Rs.60
(d) Increase by Rs.40 (e) Increase by Rs.80.
(2 marks)
< Answer >
45. Consider two points A and B on a linear demand curve. The price and quantity demanded associated
with the two points are given below:
Point Price (Rs.) Quantity Demanded (units)
A 8.50 2,000
B 10.00 1,500
The point elasticity of demand for the product if price increases from Rs.8.50 to Rs.10.00 is
(a) 1.33 (b) 0.85 (c) 1.13 (d) 1.42 (e) 0.71.
< Answer >
8
(2 marks)
46. The supply and demand functions of a commodity are estimated as
Qd = 1,000 – 200P
Qs = 800P – 2,000
At equilibrium, the elasticity of supply for the commodity is
(a) 2 (b) 4 (c) 6 (d) 8 (e) 10.
(2 marks)
< Answer >
47. When marginal utility is negative, total utility is
(a) Increasing (b) At a minimum (c) Equal to zero
(d) Decreasing (e) At a maximum.
(1 mark)
< Answer >
48. Which of the following does not cause a shift in the demand curve?
(a) Changes in the price of the good
(b) Changes in the income of the buyers
(c) Changes in the personal preferences
(d) Changes in the price of related goods
(e) Changes in the consumer patterns.
(1 mark)
< Answer >
49. Which among the following causes the indifference curves to be convex to the origin?
(a) Diminishing marginal rate of substitution
(b) Increasing marginal rate of substitution
(c) Constant marginal rate of substitution
(d) Increasing marginal rate of technical substitution
(e) Constant marginal rate of technical substitution.
(1 mark)
< Answer >
50. The demand schedule of products A and B are given below:
The value of arc cross elasticity of demand for product A is
(a) 2.98 (b) 26.86 (c) –0.11 (d) 0.03 (e) – 0.33.
(2 marks)
Product A Product B
Price (Rs.) Quantity Demanded (Units) Price (Rs.) Quantity Demanded (Units)
20 100 40 100
20 80 80 80
< Answer >
51. If marginal product is negative, it means that the
(a) Total product is at maximum (b) Average product is at maximum
(c) Average product is falling (d) Total product is increasing
(e) Average product is negative.
(1 mark)
< Answer >
52. If total cost function for a firm is TC = 36Q – 0.60Q2 + 0.020Q3, the minimum possible average cost is
(a) Rs.63.00 (b) Rs.36.50 (c) Rs.31.50 (d) Rs.60.00 (e) Rs.48.50.
(2 marks)
< Answer >
53. A firm has a production function Q=K + 2L, where Q is the output, K is the capital input and L is the
labor input. If both the wage and the cost of capital are equal to Rs.100 per unit, the cost minimizing
output is
(a) Produced at any point along the isoquant
(b) Produced by using labor input only
< Answer >
9
(c) Produced by using capital input only
(d) Is impossible to produce
(e) Produced by using both labor and capital in equal amounts.
(2 marks)
54. Maximum point on the average product curve is reached when
(a) Marginal product is zero (b) Marginal product is maximum
(c) Marginal product is minimum (d) Marginal product is negative
(e) Marginal product equals average product.
(1 mark)
< Answer >
55. Marginal product of labor is the
(a) Cost of employing labor for producing one more unit of output
(b) Change in output from using one more unit of labor
(c) Change in revenue from selling one more unit of output
(d) Change in revenue from using one more unit of labor
(e) Change in cost from using two more units of labor.
(1 mark)
< Answer >
56. The production function of firm is
Q = – 3
L3
+ 4L2 + 16L
The point beyond which diminishing returns will begin is
(a) 2 units (b) 3 units (c) 4 units (d) 5 units (e) 6 units.
(2 marks)
< Answer >
57. The vertical distance between the average cost and average variable cost is
(a) Total cost (b) Total fixed cost (c) Marginal cost
(d) Variable cost (e) Average fixed cost.
(1 mark)
< Answer >
58. The production of a tile manufacturing firm is at the minimum point of its average cost curve. The firm
is
(a) Operating under diminishing costs
(b) Making optimum use of its capacity
(c) Operating under excess capacity
(d) Operating under increasing costs
(e) Operating at constant costs.
(1 mark)
< Answer >
59. Average product of a variable input is
(a) The total product divided by the price of the product
(b) The same as marginal product when marginal product is maximum
(c) The total product divided by the amount of variable input used
(d) The same as total product when marginal product is zero
(e) The amount of additional output that can be produced by using one more unit of the variable input.
(1 mark)
< Answer >
60. The supply curve of a monopolist
(a) Is the portion of MC curve that lies above the AVC curve
(b) Is the portion of MC curve that lies above the AC curve
(c) Is vertical
(d) Is horizontal
(e) Is absent.
(1 mark)
< Answer >
10
61. The management of a company has finally agreed to increase the salaries of its staff by 10%. Which of
the following will not be affected by the decision?
(a) Economic costs (b) Accounting profits (c) Direct costs
(d) Implicit costs (e) Fixed costs.
(1 mark)
< Answer >
62. The total cost function for a firm is estimated to be TC = 50 – 2Q + 3Q 2 . If the current output is 3
units, the marginal cost is
(a) Rs.36 (b) Rs.46 (c) Rs.26 (d) Rs.16 (e) Rs.6.
(2 marks)
< Answer >
63. A firm operating under perfect competition has the following cost functions:
MC = 100 – 20Q + 1.5Q2, AVC = 100 – 10Q + 0.5Q2
The price below which the firm shuts down its operations in the short run is
(a) Rs.15 (b) Rs.25 (c) Rs.50 (d) Rs.60 (e) Rs.75.
(2 marks)
< Answer >
64. A firm faces the following average variable cost function
AVC = 300 – 10Q + 0.5Q2
Fixed costs are Rs. 150. What is the minimum possible marginal cost?
(a) Rs.243.67 (b) Rs.223.67 (c) Rs.237.33 (d) Rs.233.33 (e) Rs.383.33.
(2 marks)
< Answer >
65. Which of the following assumptions is/are necessary for a market to be perfectly competitive?
I. Products are homogenous.
II. Cost structure of every firm is identical.
III. Buyers have no preferences towards any seller.
IV. Buyers have perfect knowledge about prices in the market.
(a) Only (I) above
(b) Only (II) above
(c) Both (I) and (III) above
(d) (I), (III) and (IV) above
(e) (II), (III) and (IV) above.
(1 mark)
< Answer >
66. ABC Corp, a perfectly competitive firm, is currently producing 20 units. The price is Rs.10 per unit.
Rent cost of the firm is Rs.100 and average variable cost is Rs.4 per unit. The firm is making a/an
(a) Economic profit of Rs.20
(b) Accounting profit of Rs.20
(c) Loss of Rs.3 per unit
(d) Profit of Rs.5 per unit
(e) Profit of Rs.6 per unit.
(1 mark)
< Answer >
67. A perfectly competitive firm can increase its sales revenue by
(a) Reducing the price
(b) Increasing the price
(c) Increasing the production
(d) Increasing the expenditure on advertising
(e) Increasing the sales force.
(1 mark)
< Answer >
68. In the short run, if the market price is less than the average variable cost for a perfectly competitive
firm, then it must
(a) Increase production (b) Decrease production
< Answer >
11
(c) Shut down (d) Increase the price of its goods or services
(e) Decrease the price of its goods or services.
(1 mark)
69. An entrepreneur wants to maximize profits without affecting his price. He must produce an output
where
(a) Average cost is minimum (b) Average variable cost is minimum
(c) Average fixed cost is minimum (d) Marginal cost is equal to the average variable cost
(e) Marginal cost is minimum.
(1 mark)
< Answer >
70. The horizontal demand curve of a firm is one of the characteristic features of
(a) Oligopoly (b) Monopoly (c) Monopolistic competition
(d) Perfect competition (e) Duopoly.
(1 mark)
< Answer >
71. A producer of fruits faces a negatively sloped demand curve. He operates at the region where the
elasticity of demand is
(a) Less than one (b) Equal to one (c) Greater than one
(d) Greater than one but less than infinity (e) Zero.
(1 mark)
< Answer >
72. Ampler Ltd. faces a downward sloping demand curve. The profit maximizing condition for the firm in
the short run is
(a) Marginal revenue = Marginal cost
(b) Price = Marginal cost
(c) Marginal revenue = Average cost
(d) Marginal revenue = Total cost
(e) Marginal revenue = Total revenue.
(1 mark)
< Answer >
73. A cloth merchant supplies cotton cloth in Andhra Pradesh and Tamil Nadu and has the demand function
given by
Andhra Pradesh : P = 600 – QA
Tamil Nadu : P = 400 – QT.
The average cost of the merchant is AC =
15,000
100
Q
+
. If price discrimination is illegal, the profit
maximizing price of the merchant is
(a) Rs.180 (b) Rs.250 (c) Rs.275 (d) Rs.300 (e) Rs.400.
(2 marks)
< Answer >
74. The policy of charging different slab rates for power consumption for different purposes by a power
distribution company describes
(a) Product differentiation
(b) Price discrimination
(c) Differential elasticity of supply
(d) Differential cross elasticity of demand
(e) Inelastic demand of consumers.
(1 mark)
< Answer >
75. Demand function of a monopolist is estimated to be Q = 100 – 10P. If the marginal revenue is Rs.4, the
price elasticity of demand for the good is
(a) 6.33 (b) 2.33 (c) 4.44 (d) 5.12 (e) 6.12.
(2 marks)
< Answer >
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76. A kinked demand curve occurs in an oligopoly when a firm
(a) Increases its price and others follow it
(b) Increases its price and others do not follow it
(c) Decreases its price and others follow it
(d) Decreases its price and others do not follow it
(e) Both (b) and (c) above.
(1 mark)
< Answer >
77. In a pure oligopoly, a price war refers to
(a) Continuous price cuts by firms to increase revenues and profits
(b) Unexpected price cut by a firm to improve its sales volumes
(c) A decrease in quantity supplied by the competitive firms to raise prices in order to maximize profits
(d) Entry of a new firm in the industry who charges a lower price
(e) Successive and continued price cuts by competitive firms with an aim to increase market share.
(1 mark)
< Answer >
78. Which of the following factors differentiate perfect competition from monopolistic competition?
I. Number of buyers and sellers.
II. Entry and exit barriers.
III. Product differentiation.
IV. Selling activities.
(a) (I) and (III) above
(b) (I), (II) and (IV) above
(c) (III) and (IV) above
(d) (I) and (IV) above
(e) All (I), (II), (III) and (IV) above.
(1 mark)
< Answer >
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