1. Managerial Economics is the discipline which deals with the application of „economic
theory to business management‟. Comment.
2. What are the major areas of business decision making? How does economic theory
contribute to managerial decisions?
3. Discuss the nature and scope of managerial economics. What are the other related
4. “Managerial economics bridges the gap between economic theory and business practice”.
Explain with examples.
5. Managerial economics is essentially the application of microeconomic theory of business
decision making. Discuss the statement.
1. What are the other related topics than microeconomic theories in managerial economics?
How do they contribute to the managerial economics?
2. “Managerial economic sis applied microeconomics”. Elucidate.
3. What are the basic functions of a manger? How does managerial economics help him in
achieving his organizational goals?
4. Write a note on the nature and scope of managerial economics.
5. “Managerial economics is the integration of economic theory with business practice or
the purpose of facilitating decision making and forward planning by management?”
6. How does the study of managerial economics help a business manager in decision –
making? Illustrate your answer with examples from production and pricing issues.
7. What are the operational issues in business management? How does microeconomics
contribute to decision-making in the operational issues?
8. What is the controversy on profit maximization hypotheses? How will you react to the
9. Profit maximization remains the most important objectives of business firms in spite of
multiplicity o alternatives business objectives. Comment.
10. What is the concept of marginal principle? Discuss the important areas of business
decisions in which marginal principle can be applied.
1. How does the analysis of demand contribute to business decision making/
2. What is law of demand? Explain with the help o demand schedule and demand
curve. What are the expectations to this law?
3. When prices of both substitutes and comp0lements of a commodity, say X, rise, what
happens to the demand for X : (a) rise, (b) falls, /(c) remains constant, or(d) all of the
above possibilities exist?
4. What is the purpose of demand forecasting? Describe the uses and limitations of the
trend methods of forecasting demand.
5. What is supply? Explain the supply determinants and its functions.
1. What is indifference curve? What are its properties or characteristics? What role
does it play in consumer analysis?
2. Define Marginal rate of substitution. What is the law behind the diminishing
marginal rate of substitution?
3. Why does a demand curve slope downward to the right? Can a demand curve slope
upward to the right under any condition?
4. What is meant by consumer equilibrium? Explain consumer equilibrium with one
and two commodity models. Derive an individual demand curve from MU-curve.
5. What is the law o diminishing marginal utility? Explain and illustrate the law with
the help of MU-schedule and MU-curve.
6. List the major purpose of demand analysis from the standpoint of management. Can
management manipulate all the variables which affect demand?
7. Suppose the demand function for a product is given as Q=500-5p. Find out
i. Quantity demanded at price Rs.15
ii. Price to sell 200 units
iii. Price of zero demand, and
iv. Quantity demanded at zero prices.
8. What are the different techniques of survey methods? Under what conditions are
complete enumeration and sample survey methods are chosen?
9. What are the determinants of supply? Explain in detail the elasticity of supply.
10. Discuss critically the different methods of demand forecasting.
1. What is meant by production? Define production function and describe the underlying
2. State and illustrate the Cobb-Douglas production function.
3. What is meant by internal and external economies of scale?
4. Define optimum input-combinations. What are the criteria for the least-cost combination
of inputs? Explain graphically?
5. Define and explain isoquants. What are the pro0perties of isoquants?
1. Distinguish between laws of returns to variable proportions and laws of returns to scale.
Explain the factor, which cause increasing returns to scale. What are the reasons for the
operation of the law of diminishing returns?
2. Using the map of isoquants and isocosts, show the role of change in relative input prices
and relative productivities in the determination of least-cost combination.
3. Suppose a short-run production function is given as
where Q is output and L is labor employed per unit of time
i. Derive MPL and APL schedules
ii. Derive MPL functions
iii. Find the output at which APL=MPL; and
iv. Find L for producing 600 unit of output.
4. Show the effects of change in input prices on the isocost line. How is the optimum
combination of inputs affected if
a) Price of only one input decreases and
b) Price of both the inputs decrease proportionately?
5. Suppose a Cobb-Douglas production function is given as
Q=L 0.5 K 0.5
a. Find the degree of production functions and
b. Find the law of production it reveals.
1. Explain in detail the different structures of market. Equilibrium under oligopoly is
2. What are the characteristics of perfect competition? Distinguish between pure and
3. Describe mark-up pricing and show that mark-up pricing is based on marginal rule.
4. What is competitive bidding? Describe the technique of competitive bidding of price
under the condition of uncertainty.
5. What is meant by „peak-load pricing? Why is sometimes peak – load pricing inevitable?
1. What is kinked demand curve analysis? What purpose does it serve in economic
analysis? Define dominant ‟Price leadership” model and discuss its advantages.
2. What is meant by price discrimination? State the necessary conditions for price
discrimination. Illustrate the third degree price discrimination assuming two different
3. Suppose demand curve for a monopoly firm is given as
And its total cost (TC) function is given as
Find the following
a. Profit maximizing output
b. Profit maximizing price
c. Total revenue function, and
d. Average revenue function.
4. Why is profit maximum at a level of output where MC=MR. Is profit always maximum
when MC=MR? Can a monopolist charge any price for his product? Give reasons for
5. Show that price is higher and output smaller under monopoly compared to these under
perfect competition. Discuss the excess-profit as a measure of „the degree of monopoly‟.
What force limit the pure monopolist‟s market powers?
6. Even though AR=Ac in both monopolistic competition and perfect competition, which of
the two market situation is preferable from the society‟s point of view and why? What is
the basic difference between monopolistic competition and oligopoly? In which of the
two kinds of the markets are price and output determinate?
7. A monopoly firm has to supply two markets with two different demand functions as given
P1 = 500-Q1
P2 = 300-Q2
Where P1 and P2 are prices and Q1 and Q2 are quantities in tow markets,
Find total cost function is given as
TC = 50,000-100Q
a) Profit maximizing output
b) Allocation of output between the two markets
c) Prices for two markets and
d) Total profit at profit maximizing output.
8. Suppose there are two oligopoly firms-firm 1 and Firm 2. Firm 1 is a low-cost firm
whereas Firm 2 is a high-cost firm. Both the firms face an identical demand curve given
by the demand function as.
Q = 50 – 0.5p
The cost functions of the two firms are given, respectively, as
TC1 = 100 + 20Q1 + 2Q12
TC2 = 48 + 36 Q2 = 2Q2 and find the following
a). Price and output of the firms separately prior to firm 1 working as the price leader.
b) Price and output of Firm 2 after it accepts the price leadership of Firm 1.
9. Discuss the controversy between marginal theorists and the empiricists on the relevance
of „marginal rule‟ in pricing th3 products by the manufacturing firms.
10. Distinguish between skimming price and penetration price policy. Which of these
policies is relevant in pricing a new product under different competitive conditions in market?
How is transfer price determined if (i) there is no external market for the transfer product, and
(ii) there is an external market or it.
11. What kind of pricing strategy is adopted over the life-cycle of a product? What do you
think will be an appropriate price policy when the demand reaches its saturation and substitute
products are likely to enter the market?
12. Discuss the technique of multiple product pricing. Illustrate your answer. Why can‟t single
average price be fixed for all products?
1. How is demand curve for investment derived? What is the optimal level of capital stock
and how is it determined?
2. Explain the concept of the present value of a future income? Explain why it is necessary
in an investment decision to discount the future income stream.
3. Define the concepts of risk and uncertainty. How does uncertainty create a different
situation for investment decision-making compared to risk.
4. Define risk-return possibility curve and risk-return indifference curve. Illustrate
graphically investment decisions with the help of these curves.
5. From the following Balance sheet, prepare a common-size statement:
ASSETS 1999 2000
Cash 27,000 31,500
Debtors 2,20,000 2,11,000
Stock 1,00,000 1,26,000
Prepaid 11,000 21,000
Bills 10,000 10,500
Fixed Assets 6,35,000 6,50,000
TOTAL 10,03,000 10,50,000
6. State the uses and significance of cash flow statement
7. Discuss the types of Ratio analysis. What are the limitations of Ratio Analysis?
8. Discuss the merits and demerits of capital budgeting methods..
9. Compute the accounting rate of return and internal rate of return for the following three
projects and recommend the projects to be accepted
Project X Project Y Project Z
Rs. Rs. Rs.
Initial Investment 90,000 90,000 90,000
1 4,000 80,000 20,000
2 40,000 30,000 40,000
3 46,000 10,000 60,000
Total 1,20,000 1,20,000 1,20,000
10. Discuss the benefits that can be derived by corporate management by using the using the
tools of funds flow analysis.
1. The following information is extracted from the books of Palkhiwala Industries for the
year ended 31st December 2000.
Acid Test Ratio 80:1
Average Collection Period(based on 360 days 45 days
in a year and all sales on credit)
Lon-term Debt to Net worth 1:1
Fixed Assets to Owner‟s Equity 1.6 times
Inventory Turnover Ratio (based on cost of 5 times
Goods sold and year end inventory)
Turnover to Total Assets 1,25 times
Gross Profit 20%
Sundry Creditors Rs.6,00,000
Bills Payable Rs.6,00,000
Equity Share Capital Rs.8,00,000
Retained Earnings Rs.2,00,000
You are required to prepare the Balance Sheet as at 31st December,2000
2. Using the information given below complete the Balance Sheet of ABC company
Liabilities Rs Assets Rs
Share Capital …… Plant & …
Ordinary 4,60,000 Cash …
Rserves 6,90,000 Sundry Debtors …
Sundry … Inventory ….
Turnover of operating assets
is 2.25 times.
Average Collection period is 30 days (assumed 360 days in a yer)
Gross profit is 25%
Inventory turnover is 3 times
Debt to net worth is 0.6 : 1
Acid test ratio is 0.6 : 1
3. Under what conditions a firm making large operating profits Is unable to meet debt
payments when due? Which are the financial ratios that help to detect such conditions?
4. Draw the Du Pont control chart and explain why Return on Investment (ROI) is called an
integrated ratio. What are its limitations?
5. Since payback period does not really measure profitability at all, what value has it in
6. The following are the particulars regarding 2 machines which are mutually exclusive.
Machine A Machine B
Cost 3,600 6,000
Salvage Value 0 500
Investment in working capital 9,000 1,200
Economic life 3 years 5 years
After-tax cash flow R.1800/year 2,600/year(1-3)
If the company can earn 10% after tax on alternative investments. Which machine will
be purchased under each of the following policies?
i. Under payback method
ii. Under IRR methods
iii. Under NPV method
7. Discuss the various capital budgeting techniques.
8. Is depreciation a source of fund? Under what conditions might this “source” dry up?
9. How can a banker use the funds flow statement while giving credit?
10. What is the debt equity ratio of a company which ahs current liabilities o R.5,00,000,
long-term loans of Rs.25,00,000 and share capital and reserves and surplus of
11. A company has Rs.15,00,000 as unsecured long-term loans, Rs.25,00,000 as secured
long-term loans and Rs.25,00,000 as secured long-term loans and Rs.10,00,000 as current
liabilities. Its share capital plus reserves and surplus is Rs.75,00,000. Calculate its
debt/equity and debt/asset ratios.
12. Given the values of Rs.3,00,000 for sales Rs.1,60,000 for cost of goods sold and
Rs.60,000 for inventory in a company. What is its inventory turnover?
13. Trend analysis of financial ratio is important. Do you agree? Why?
14. Why are ranking investment opportunities necessary?
15. Where do proposals for capital expenditures originate within a firm? Why are they so
frequently treated in a separate budget from current expenditure?