question bank-EEFA-2 marks by MahalakshmiBaskaran



                                     (8 MARKS)

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.

                                    (16 MARKS)

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.

                                    (8 MARKS)

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.

                                   (16 MARKS)

 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.

                                      (8 MARKS)

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?

                                     (16 MARKS)

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.

                                        (8 MARKS)

1. Explain in detail the different structures of market. Equilibrium under oligopoly is
   indeterminate‟. Comment.
2. What are the characteristics of perfect competition? Distinguish between pure and
   perfect competition.
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?

                                       (16 MARKS)

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
   you answer.
   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?

                                       (8 MARKS)

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
                                             Rs.            Rs.

                       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.
                                         (16 MARKS)

   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
      capital budgeting?
   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?


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